Let’s get one thing straight from the start: signing a non-disclosure agreement for app development is a controversial topic, mainly because there are two schools of thoughts governing NDAs. Those in favor of NDA’s claim that it is a vital aspect of any development project, but others have labeled it as a harmful and dangerous decision that will affect the future of the business.
We are going to cover everything related to non-disclosure agreements for app development and divulge information related to when you should use NDAs and when you should avoid them. Before we get to that part, first let’s discuss what is an NDA.
What is an NDA?
A Non-Disclosure Agreement, also known as an NDA, is a legal contract that can be used in any scope where intellectual property requires special protection. The purpose of the NDA is to secure confidential information, trade secrets, and ideas that could lead to business losses if revealed to other parties or their competitors in the industry.
The involved parties in this contractual agreement will work with one another to protect confidential information. The agreement 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)
There are 3 main types of non-disclosure agreements that can be executed, depending on the requirements of the involved parties. These are:
- Multilateral NDA
- Mutual or Bilateral NDA
- Unilateral NDA
Multilateral NDAs are applied when there are three or more parties working together and sharing confidential trade secrets with one another.
Mutual NDAs are where both involved parties agree not to disclose information with anyone else. These are the most common non-disclosure agreements, where two different businesses collaborate to work together on a project.
Most NDAs fall under the category of Unilateral NDAs, where one of the party 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 agreement is signed by the other party, they are legally bound to comply with the agreement or risk prosecution.
The Fundamentals of an NDA
There are several cases where you will find NDAs that are several pages in length, but since there isn’t a specific template for an NDA, there are multiple types. However, there are some key fundamentals that defined a non-disclosure agreement document. Every NDA document should include the following:
- Identify all involved parties (subcontractors and your company)
- Define the information that must remain confidential (like special algorithms etc.)
- Describe the scope of that confidentiality obligation
- Name information excluded from confidential data (what you can and can’t share)
- Terms of the agreement (what happens if confidential data is shared or leaked)
The goal for non-disclosure agreements is to ensure that you’re protected from everyone and everything. All NDAs are used to create a safe environment where everyone understands and acknowledges the rules pertaining to sensitive information. An NDA is extremely useful when you’re working with a large group of people or a team on an app development project.
Does an NDA Protect Your App Idea?
When you’re working on a unique app idea that could be hugely successful, it is natural that you will want to protect that idea, so 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 it is by no means guaranteed.
At what stage should I sign the NDA?
There is a lot of confusion about what stage a non-disclosure agreement should be signed when you are working with others on your app. The ideal scenario would be to sign the agreement when you are hiring new employees or working with other parties. In some cases, you can also choose to sign an NDA during the interview stage, if you plan on revealing confidential information that you don’t want to be leaked.
Key Clauses of a Non-Disclosure Agreement for App Development
Right to seek an injunction
All contracts clearly state that monetary compensation by itself can’t compensate for losses that come out of a breach and all parties will agree to this in the contract. That is done to ensure that the party apprehending the breach can go to court and acquire a stay order easily.
Consequences of a breach
One of the most important 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 suffered due to 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 confidential information will be attached to notices and detailed in a schedule 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 take place. However, because of the advent of drop boxes, and email storage, it can be impossible to destroy all the information that is shared. However, 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.
All non-disclosure agreements must reveal a time frame to clearly dictate the time duration for when the recipient receives that information. It is smart to have an NDA that stops one from holding information for an infinite period. NDA documents should have reasonable limits for restrictions.
When Should You Stay Away from an NDA?
We are living in a time of misinformation, where it is difficult to trust other people with your secrets, and that has seen a rise in demand for non-disclosure agreements. There are instances where an organization has a unique app idea and comes to contractors or agencies for development, but they fear the idea of being stolen and used to profit by other parties. The common thought process would be to get an NDA to get over those fears, but you could make things worse with an NDA as well.
How is that possible? Let’s put it this way.
You have a plan to build an app that will act as a tool for your business idea, and you’re putting a lot of money into its development, after which you will launch it in the market, where users will download it to purchase your products and services. To ensure that your idea is successful, you hire an app development agency to develop your app and then make them sign an NDA to protect your idea.
Sounds like a good idea doesn’t it? It’s a recipe for disaster in this era.
It is a disaster because you have an untested idea that hasn’t been shared with anyone except the development team. Therefore, you don’t have any feedback about the functionality and need of the app from your potential clients. That means the chances of your app failing are high, and if it fails you must incur the financial implications and the loss of respect for your brand.
That is the reason why you should stay away from an NDA in the initial stages of your idea because you need to collect valuable data and information from multiple sources in the beginning. It is imperative that you acquire feedback about your idea before you start investing money into it.
For instance, Uber didn’t come out of the blue, as there were numerous taxi services before it came into existence. The developers of Uber didn’t keep anything secret and are one of the biggest brands in the world today! To drive home the point, here are some cases when you should stay away from signing a non-disclosure agreement:
If the expert says “No”
You may have found the best developer for your app, but they don’t want to sign an NDA. You must consider several things if they refuse to sign an NDA, like their track record, your need for an NDA, the trust factor, and your preference of working with the developer.
Right at the beginning
During the initial phase of development, you will have several meetings with app developers and agencies. It is better not to bring up the topic of an NDA because this time should spend on assessing the viability of the developer or agency.
In most cases, if you bring up the NDA in the first meeting, the agencies and experts will lose interest in working with you and will move on to another project. Therefore, it is best to stay clear of the NDA topic, since it is in your best interests to share your ideas with experienced and skilled developers so that they agree to work with you.
The agreement is unfair or inclined towards the contractor
If you are working with an app development agency that has a lot of work in their pipeline, then you have some negotiating power for signing an NDA. However, if your project is small and won’t require much time to complete, the developer will refuse to sign the non-disclosure out of fear of legal liability.
Red Flags to Consider When You’re Signing An NDA
When you’re signing an NDA, it is imperative that you go through all the clauses thoroughly and comprehensively to ensure that it is fair for all parties. If you don’t know about red flags to watch out for in a non-disclosure agreement, we are going to share some with you. 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 are in favor of the party that wants you to sign it. 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, and that will show itself in an inability to compromise. If you’re dealing with such a client, it’s not worth working with them.
Noncompete clauses after the project is finished
You should pay attention to non-compete clauses carefully and discuss all clauses that affect your work with other clients after the project is finished. Consider that enforcement of non-compete clauses are different since they are based on state laws in the United States.
The broad definition of confidential information
If the definition of confidential information in the NDA is making alarm bells go off, then you should discuss this immediately. An extremely broad 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
You must 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. It the confidentiality terms are excessive, that is a massive red flag, especially in the ever-changing tech industry.
The obligation to work on the 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 with terms to work on the project, but if the client asks you to sign an NDA before terms have been agreed, then 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 is going to rest with you, and you may believe it is the smart thing to do, but in the app development world, there isn’t any need. If you do 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 5 years. Also, never sign an NDA that isn’t in your favor.