Let's get straight: signing a non-disclosure agreement for app development is controversial.
There are two schools of thought governing NDAs. Those in favor of NDA claim that it is a vital aspect of any app development project. However, others have labeled it as a harmful and dangerous practice that will affect the future of the business.
We will cover everything related to non-disclosure agreements for app development and reveal information on when you should use an NDA.
What is NDA?
A non-disclosure agreement, also known as an NDA, is a legal contract that can be used in any scope where information requires special protection. The NDA aims to secure confidential information, trade secrets, and ideas that could lead to business losses if revealed to third parties.
The involved parties in this contractual agreement will work together to protect confidential information. The deal will guarantee that both parties won't reveal sensitive data to anyone during the agreement.
Non-disclosure agreements for app development are also known by other terms, which include the following:
- Secrecy Agreement (SA)
- Proprietary Information Agreement (PIA)
- Confidentiality Agreement (CA)
- Confidential Disclosure Agreement (CDA)
Three main types of non-disclosure agreements can be executed, depending on the requirements of the involved parties. They are:
- Multilateral NDA — It is applied when three or more parties work together and share confidential trade secrets.
- Mutual or Bilateral NDA — Types of a document where both parties agree not to disclose information to anyone else. It is the most common type of non-disclosure agreement, where two different businesses collaborate to work together on a project.
- Unilateral NDA — One of the parties isn't allowed to share some definitive information about the other. For instance, if you're running a business, you may ask your employees to sign an NDA to stop them from disclosing company secrets. Once the other party signs the agreement, they are legally bound to comply with it or risk prosecution.
The Fundamentals of NDA
There are several cases where you will find NDAs that are several pages long. However, some key fundamentals define a non-disclosure agreement document.
Every NDA document should:
- Identify all involved parties (subcontractors and your company)
- Define the information that must remain confidential (like unique algorithms etc.)
- Describe the scope of that confidentiality obligation
- Name information excluded from personal data (what you can and can't share)
- Define terms of the agreement (what happens if personal data is shared or leaked)
The goal of non-disclosure agreements is to ensure you're protected from everyone and everything. All NDAs create a safe environment where everyone understands and acknowledges the rules on sensitive information. An NDA is beneficial when you're working with a large group of people or a team on an app development project.
Does NDA Protect Your App Idea?
When you're working on a unique app idea that could be hugely successful, it is natural that you want to protect that idea so that no one steals it.
A non-disclosure agreement doesn't guarantee that your app idea is protected. It only means that if you have shared that app idea with someone, the NDA will prevent them from building an app for the same service as you. So, you do get some minor protection for your app idea, but your business idea won't remain 100% unique.
At what stage should I sign NDA?
There is a lot of confusion about what stage a non-disclosure agreement should be signed when you work with others on your app. The ideal scenario would be signing the contract when hiring new employees or start working with other parties.
In some cases, you can also choose to sign an NDA during the interview stage if you plan to reveal confidential information during the hiring process and don't want it to be leaked.
Key Clauses of Non-Disclosure Agreement for App Development
A non-disclosure agreement should contain the following parts to keep you safe from any possible threats caused by a leak of confidential information.
Right To Seek Injunction
All contracts clearly state that monetary compensation alone can't compensate for losses from a breach, and all parties will agree to this in the agreement. It helps ensure that the party apprehending the breach can quickly go to court and acquire a stay order.
Consequences of Breach
One of the essential parts of an NDA is stating the consequences a party will face if they breach the NDA document. These consequences could range from heavy financial penalties or even an indemnity for losses from a breach.
Secret Information To Be Protected
You must specify this part of an NDA about what information must be kept confidential or secret. The personal data will be attached to notices and detailed in a message sent by mail.
Return of Information
At the end of the agreement, all confidential information must be destroyed or returned to the recipient party. The NDA should contain clauses detailing when and exactly how that will occur.
Including this clause in the NDA will ensure that all information shared with other parties will be destroyed or returned. If the information can't be destroyed, that clause may well include legal terms to ensure that other parties don't share the information with the public.
However, because of the development of modern data sharing and storing technologies, it can be impossible to destroy all the shared data.
All non-disclosure agreements must reveal a time frame to dictate the time duration for when the recipient receives that information. It is wise to have an NDA that stops one from holding information for an infinite period. NDA documents should have reasonable limits for restrictions.
Red Flags to Consider When You're Signing NDA
When you're signing an NDA, you must go through all the clauses thoroughly and comprehensively to ensure that it is fair for all parties. We will share some if you don't know about red flags to watch out for in a non-disclosure agreement.
Here are some of the red flags that indicate you shouldn't ever sign an NDA document:
One-Sided and Non-Negotiable Clauses
Most NDA documents favor the party that wants you to sign them. However, if the clauses in the NDA have no scope for negotiation in the future, then you should bring that up with the other party. Sometimes clients may have trust issues from the start of the relationship, which will show itself in an inability to compromise. If you're dealing with such a client, it's not worth working with them.
Non-Compete Clauses When Project is Finished
You should carefully pay attention to non-compete clauses and discuss all provisions that affect your work with other clients when a project is finished. Consider that enforcement of non-compete clauses is different since they are based on state laws in the United States.
Broad Definition of Confidential Information
If the definition of confidential information in the NDA makes alarm bells go off, you should discuss this immediately. An extensive clause may interfere with your work, and you should list items that aren't confidential, like:
- Information is known before disclosed from the other party
- Publicly available information
- Information shared by a third party on non-confidential terms
It will help if you protect yourself in case of compelled disclosure like a government investigation or subpoena.
Excessive Confidentiality Terms
A well-drafted agreement doesn't differentiate between confidentiality terms for confidential information or trade secrets. If the confidentiality terms are excessive, that is a massive red flag, especially in the ever-changing tech industry.
Obligation To Work on Project
A non-disclosure agreement isn't a project agreement or contract. Therefore, the NDA shouldn't obligate you to work on any project. You should only sign an NDA when you have agreed to terms to work on the project, but if the client asks you to sign an NDA before terms have been agreed upon, check to see whether the NDA obligates you to work on the project after signing it.
The decision to draft an NDA with legal assistance will rest with you, and you may believe it is the intelligent thing to do, but in the app development world, there isn't any need. If you plan on drafting an NDA and making other parties sign it, you must ensure that it is drafted by a lawyer and doesn't last longer than five years.
An NDA is a document that aims to protect confidential information from any possible leaks. It defines roles and responsibilities. Also, it specifies the types of information that are forbidden to share with third parties.
To keep yourself safe from confidential information leaks, an NDA should imply the following:
- Involved parties (subcontractors and your company)
- Information that must remain confidential (like unique algorithms etc.)
- Scope of that confidentiality obligation
- Information excluded from personal data (what you can and can't share)
- Terms of the agreement (what happens if personal data is shared or leaked)
The three types of a non-disclosure agreement are:
- Multilateral NDA
- Mutual or Bilateral NDA
- Unilateral NDA
In most cases, an NDA is signed before cooperation between parties begins. Nevertheless, the document can be signed during the interview process in exceptional circumstances.
The red flags that are obligatory to consider are:
- One-sided and non-negotiable clauses
- Non-compete clauses when a project is finished
- Broad definition of confidential information
- Excessive confidentiality terms
- Obligation to work on a project