Sign Colorado NDA Easy

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hi this is patrick henry the CEO of quest fusion with the real deal what matters I'm here today with Jeremy Glaser who is an attorney at the law firm of Mintz Levin Jeremy serves as the co-chair of the firm's venture capital and emerging companies practice and jeremy has experience working representing both venture capitalists as well as entrepreneurs and startups and so he's got experience on both sides of the fence there we've had Jeremy as a guest on the show before and you should definitely check out his initial interview he did with us which kind of explains a little bit more about his background jeremy has so many awards and recognitions it's hard to name them all but most recently he was named the San Diego venture capital law lawyer of the year so congratulations on that and jeremy has also served as a past president and a board member for the San Diego Venture Group and is a member of the American Bar Association so welcome Jeremy thanks Patrick today we're going to be discussing non-disclosure agreements our n das is they're commonly referred to and the different types of n das and what are the key components that you need to include in nda's as a start-up or as an entrepreneur so Jeremy can you describe kind of in layman's terms the different types of n das sure so what's a store with even why do you need an NDA right ok so most companies they're developing some new products a new technology and that's their secret sauce and the last thing you want to do is be out there talking to people about it and then they can go ahead and say oh that's a great idea and run up and go start their own business yeah so really the purpose of the NDA the non-disclosure agreement is when you meet with somebody to have them agree in writing that what you're sharing with them is going to be confidential specifically agreeing that they're only going to use that information for purposes of the specific relationship or conversation you're having ok so they agree in writing that they not are not going to go off and go start another business using your idea or go share your information with somebody else or go write an article about it and publish it so it protects your idea okay so really important that you have a form that you use when you go out to meet with people i will talk about their some instances where you can get ndas and some instances where you can write but basically there's really two flavors that's what we what we call a mutual NDA now and then there's a one-way NDA and there what they sound like right so the one way is I'm sitting down with you Patrick I've got a great idea i want to share with you i make you sign and no one way that says i'm giving you information you're going to keep it confidential mm-hmm a mutual one is where would say we're talking about negotiating a deal yeah and you might be providing some service to me and I will be providing some service back to use so we both have secretly wanna keep yeah that's what we call mutual NDA and rarely have I seen anybody wanting to sign a one way and so everybody always basically have some exotic sale yes so in in my experience I mean you get a confidentiality provision typically and you have a proprietary invention you know something about the technology mean are those things always included in all in the A's or kind of one of the components let's just talk about from from a mutual NDA so we're sharing information with each other we want to do it in a confidential way what every rules associated with that you know typically there's a term or a length of time that you know information is in existence then what are some of the other provisions that you commonly see in days and it does you know mints have a a form in da that they have for startups or things like that sure so so the interest yes we do we have we have forms of both mutual NDA's and one way NDA's we actually have a fixed fee program we provide the startups that we give that NDA for free okay now granted a form that the form is thorough and it's great and so we could use it but there's always things you need to be aware of as you're negotiating right off of any document the forum is just a starting place yeah so a couple of things you mentioned so one thing you need to be focusing on when you're negotiating an NDA is what's confidential the the scope of what has to be kept confidential is real important now because there might be a lot of information being shared that's not private that maybe is already in the public domain right or maybe you were already knew before you actually met me yeah so the definition of what we're going to consider confidential and therefore what can't be used is important otherwise you could find yourself potentially being exposed to a lawsuit by some third party or the party who you have been da width when you had every right to use that information but you didn't make that clear in the agreement no and you've now bound yourself to keep something confidential that really you shouldn't have had to so the definition of confidential information is a really important part kind of the NDA and should be carefully reviewed and make sure it fits the specific circumstance you mentioned the term so you certainly don't want the Indiana last forever at some point theoretically the information just becomes so old and cold that it really doesn't have to be kept confidential anyway now that's not always the case there was some information that may vary be valuable sort of forever now you can certainly provide that this person agrees to keep that information confidential and not use it forever yeah but that's unusual you would typically have an NDA have some sort of a set term that you know maybe a couple of years you know 35 years of the most and then the agreement would go away okay you know there's so many other aspects that one can negotiate the one thing I always want to warn people about especially in the technology space is that you can sometimes end up in a situation particularly with a large company where and now i'm going to say that they're tricky but in trying and trying to protect themselves they will draft the agreement in such a way that things that are derived from the conversation so I share with you an idea yeah and they don't use that idea but they walk away with resume is exactly and they sort of sometimes will carve that out yeah and that could be very dangerous to a startup company because you could have ended up giving away something very valuable without knowing it and now the big company can run off and go use it and because the way they drafted the NDA you have no way to stop them right was derived or residual yeah as they talk yeah all you obviously how to deal with is I've already s it can be bullies yes they can the bigger the company and letting less flexible I mean they they have a lot of intellectual property and they want to make sure that they're protected but they also feel like they should be able to do anything they want to do so as an entrepreneur you have to be very careful in those situations with things that are real intellectual property but I think a lot of times entrepreneurs get wrapped around the axle on what really is something that you need to have as confidential and you know it's as an example you know you typically a venture capitalist or even most angel investors will not sign non-disclosure exactly they was so you need to find a way to share information about your business and if they're raising money in a way that you don't have to get people to sign an NDA because they're not going to sign up so so I mean what's what's your experience kind of coaching entrepreneurs about those kinds of things so comes up all the time and you're exactly right a venture capitalist and most angel investors will not sign NDA's and the reason is obvious they're seeing so many deals that if they're signing NDA's on deals they don't know the next deal that they're going to see there might be of interest to them and they invest in it and they signed an NDA with you but they decided not to invest in your deal yeah now you're suing them claiming oh you know you violated it because you're done they can't be put in that position yeah so it's just not going to happen you're going to get an NDA signed in that situation so it's obviously built upon a lot of trust and it's the same advice I've given to companies when they're considering a transaction with a third party or an M&A deal yeah you need to sort of leak out the information you don't just walk into the meeting and give them everything yeah you need to make sure that there's real interest that it's serious interest and over time and as you get comfortable with the relationship you can obviously share more and more are the information that you view is really important and crucial to your business yeah so you're right you need I always tell entrepreneurs I want you to put together an executive summary down and a pitch deck that is non-confidential right there's nothing in there that you would be worried about it ending up in hands of the direct competitor of your business if there's something in there that you want to you don't want a direct competitor to see you got to take it out and there will be a time later when you're much further down the road with that investor we can then share that kind of confidential information probably once you've gotten either gotten a term sheet or you're pretty darn close to getting a term sheet issued at which point you're interested so aligned know if they obviously have no interest in sharing the information because it would hurt their investment at that point right so that's where their implant of a deeper diligence phase but you need to have layers of information that basically you can provide stuff now let now let's say you know I have my slide deck and I market you know confidential and proprietary information request fusion does that protect me or do I actually need to get a signed agreement from somebody to make it confidential yeah so I think always should mark things confidential absolutely right but in the absence of an agreement from somebody that they're going to keep it confidential you can't go through that person and claim that they violated your confidential because they could look at and go well there's nothing confidential and there I knew all that before I learned anything yeah from what you said to me so it's good just in case it ends up in somebody's hands and so people will probably be a little more thoughtful about how they're going to treat it yeah but in the absence of an actual agreement around confidentiality you're not going to be successful with going after somebody who uses that information now how important is it to outline how confidential information is exchanged I mean I've seen kind of in my history where you have a meeting and you have to follow up afterwards and say these are the specific things that we talked about that are confidential is that essential or is it you know if you don't have that you are you exposing yourself to a lot of risk or how does that work so again it really depends upon the terms of the agreement and this is where again people i think get too comfortable that oh a four-man da is okay right they pull something off of the internet and just go ahead and use that without understanding its implications yeah and then they don't live by it so the classic example is what you just described right somebody pulls an NDA off the internet they sign it they think that they're tected now because they signed an NDA yeah but the NDA that they signed says that in order for something to be confidential it has to be marked confidential and you have to identify it as confidential immediately after or prior or immediately after the disclosure yeah and so then they disclose all kinds of things in the meeting none of which is part confidential now and the fob doesn't happen yeah and now they've lost the protection because the agreement that they signed said for it to fall within the definition of confidential information you needed to go through those steps right you don't have to have that yeah you can you can say broadly define these areas is to have information that we share is confidential yeah so it really is a give and take in a negotiation now that whole sort of marking concept I mean look it's obviously very protective for the person who's getting the information right because you want to my argument to you would be how I want I really know what you think is confidential so I know what I have to protect or I talking about so much stuff and some of it I know some of it I don't know some of it might be in public domain some of it may not be I can't possibly determine what that is but Patrick you know because it's now information yeah so it's your obligation to make sure you clearly identify what's confidential but you deliver it to me are promptly thereafter it's legitimate argument but it creates a procedure that could really blow up in your face if you don't follow it carefully now what if somebody you know you have all these conversations and you get the follow up action and they have a bunch of stuff mark confidential and you're like I know this stuff's in the public domain with you it used to be hard you know because they love the Internet what the internet is really right yeah because i do have these conversations like oh this is so secret and this is something it's like you have the internet it's like it's all over the place so how do you challenge that but challenge it in a way where you don't want to disrupt the relationship but the same time you don't want to be beholden to something that somebody thinks it's confidential but it's really not yeah so again you start with with the agreement and the definition yeah most most and NDA's confidentiality agreements have a specific exception that says that if the information is in the public domain prior to the time of disclosure and you can prove that the albums written evidence that it's not considered confidential caption it's sort of built in to the death so that's pretty easy as long as you have a good as long as it takes off as well as the car that's in there and this number of sort of standard carve-outs that are important to have yeah to understand and read and make sure that they work in the context of your specific relationship now does this basic kind of form in da the one that you have on men's edge does it cover things like with customers and with partners and with employees and you know or do you need to tailor it for different audiences very good question so there's really two broad universes there's the NDA that is used for customers this well call Brody business relations Marshall business types exact yeah and then there's a whole separate confidentiality agreement that's for employees and consultants and that we actually use a different name for we call that a proprietary proprietary information and inventions agreement right and that is a very different agreement that's them something that every company should have at the time they form their company and that every employee and every consultant whoever works at the company yeah needs to sign and I've definitely been in situations where companies haven't managed that process while and you get into an M&A discussion and you're like okay now we got to round up you know these five guys that never signed anything and these four consultants that never signed anything and try to get people to sign stuff after the fact and it could be a big deal anyway really matter because especially if you've developed it they were involved in the process of inventing any of the technology right here's some real issues if they'd not signed that document about ownership right and whether you have clear title right so that's a hugely important document to get signed yeah every person that is an employer consultant and in fact I talked about we have the these forms and this men's edge package yeah part of the vintage package for companies and part of our fixed fee program is may get a form of proprietary information and dimensions agreement so that they have definite very beginning so that all their employees and consultants are signing the appropriate document so with within those two universes you know those two basic form agreements that you have how frequent are you gather data on how frequent people use them as is versus need some level of customization sure so the employee proprietary information and inventions agreement is because pretty much used as is the only exception is there's a specific section in there where an employee can list inventions that they invented prior to their working for the company and that they want excluded okay that's really the customization for that that's usually not negotiated it's usually those inventions are listed the employer will look at them and make sure they agree but rarely you really changing the language of that specific agreement on the flip side the NDA the more commercial business terms n da that's really more typically where you're getting negotiations now look you know early startups and they're moving fast and the forms is sort of adequate to protect them and you got us don't make sure you know what's in there so you know that you're complying with whatever requirements are in the form that you've elected to use so it works without a negotiation but I always urge people to make sure that I understand and don't just sign it away without really understanding what it says and what it requires our people now the bigger company like it's kind of like the David and Goliath or I'm gonna tease and Goliath because action a little guy want in that situation a more typical situation where the bigger companies like well gifts I'd rmbf guitar commits our forum it's our thing how as a start-up do you deal with that and make sure you're not getting in a situation that you know it's going to compromise you a lot I I know it's hard because no one wants to spend you know the dollars on legal fees but I tell every startup you should never sign a form in da put in front of you by a large corporation because there's gotchas in there yeah and you and you want to make sure and you'll regret it later or frame and it could hurt you later yeah it could mean that you lost some protection of some important information right it could be you've allowed a competitor to get into your space who wouldn't have been there otherwise yeah sharing that information it's really worth it to run that by it's not an expensive review to have an attorney look over the NDA and point out to you the issues where you have exposure sure and you can go back to the other company and at least try yeah and even if they won't make changes at least then you're aware yeah of where the risks are yeah you might share information differently than you would otherwise thanking that oh I've got all this protection exactly okay and then kind of this we haven't talked about it but I is there a third form of NDA related to M&A transactions where you're kind of exchanging data room information and okay talk a little bit about that and kind of what that it that's all about sure so when you're going to emanate negotiations again clearly there's going to be a form of NDA the week that will be put together for sort of a front the initial companies you're talking to about your business because usually you're talking down like so step one in a step two so on step one writes what's included in that so again it's really that the initial one it's not that it's really different from sort of the business commercial terms n da what would it does though is it's sort of a specifically tailored around the M&A discussions so again we go back to this whole you know what is considered confidential it really is driven by that definition of the kind of information it's going to be shared yeah so that's really where the tailoring and the sort of MA and DA comes from as opposed to a more standard business type of NDA the reality is they're quite similar right they have periods of time with where the information cannot be shared yeah they have some specific exceptions where things you know or outside of the definition again in the ND and the M&A context usually there's much more sophistication going on at the time of the exchange so that's where you're likely going to see the kind of marketing things we're talking about right because people are in a process that is much more sort of formalized and sort of an ongoing business conversation so those those NDA's will tend to be a little bit tighter they'll tend to be a little bit more formal and not more processed built in yeah there is the more business NDA we try not to do that because we realize both companies aren't going to be following procedures as they're having multiple conversations with lots of different potential customers or suppliers or whatever okay and then you know I've seen like non-solicitation baked in a lot of times in these M&A types of ndas which means you know the company that you're potentially selling your company too they can't recruit your employees if you're exposing your employees names and what they do and all those kind of things yeah is that pretty common or is that you know you see a lot push back on that M&A transactions or so yeah I mean basically and I think you're pointing a really good point that very often you'll see snuck into these not only a no solicitation of employees but what we call a lock up yeah that you know big companies will put in an NDA that you're agreeing to so effectively take your company off the market yeah which is obviously unacceptable and you would never agree to but you'd be amazed how often they try to sneak it in there and think that someone is so excited about the potential being sold that they're going to get this free you know free look period on the Appetit so very very careful and thoughtful if you're ever being given the idea by the potential acquirer or as opposed to you you know providing your form out to the people who are sort of looking at the company and yes that in this context and video in the context of the typical customer relationship very often you will have a no solicitation of employee provision on the theory that in both of those situations you're being exposed to the employees now but the other company sometimes it's a mutual non-solicitation court everything okay correct and again those are negotiated you know how long or and again there's very specific sections you need to build in I mean the most obvious one you don't ever want to be in a situation where you can't hire someone who's quit their job right and is out looking right i mean you should be able to hire that person but i need to don't exceptions like that and then you can get a lot more creative on some of the exceptions on the solicitation of employees so again it's a bit of a broken record but it is important to actually understand the context of the indiana you're putting in place yeah to actually review it carefully to have preferably an attorney but some of these very flee with ndas do it as well so at least you can know where the pitfalls are and where your risks are and hopefully go in and try to tighten something these things down to make it work for your particular business ok now let's say you know hypothetically you know I we've signed a mutual non-solicitation agreement and you have some engineer working for you and he hates working for you and he's like hey Patrick I really want to come work for you and we have this agreement in place am i able to hire that person because they've contacted me or is it you know depends again on the language in the agreement oh yeah so some some no solicitations are actually no hires right you agree that for a year you won't hire i'll ever hire anybody from that company right gonna be real careful what you're finally care for the language matters yeah ok and then you know in your experience and i think a lot of times entrepreneurs get very paranoid about somebody stealing their ideas and in my experience you need to protect how you do stuff but what you do you need to be able to explain that in a way that doesn't include confidential information so you know do you really see venture capitalist kind of ripping off ideas from companies or what is this a legitimate concern by entrepreneurs or it's certainly not as to venture capital so I mean think about it what what venture capitalist is going to stay in business if they have a reputation of taking companies ideas and running off and starting a new company yeah giving them to the it's you're going to destroy your business yeah so no I don't think I I can honestly say in 30 years I've never seen a venture capital firm do this however i have seen companies do it yeah and so when you're engaged in negotiations especially as a small company and you're trying to show your technology to a potential strategic investor yeah for potential customer yeah it's quite important that you have at NDA in place unfortunately I've seen situations where large companies with a lot of resources have seen a technology yep and have said hmmm not patented you know and off they go yeah and even though there might be a case to go sue them just the cost is so prohibitive today after them on it that unfortunately I think one situation where my client folded up shop and went out of business gasps the company took their idea ran off with him there was really nothing they could do because they couldn't afford to sue them and down it was a terrible situation yeah and I think this has been a really good comprehensive discussion there's one thing that in my kind of experience where you still have to be careful and it used to be you know Korea you know now it's primarily China where even if you have a nondisclosure agreement or even if you have employees over there and they signed a proprietary invention you know whether its cultural or whether it's whatever you still have to be very careful on how you protect your intellectual property even if you have the right agreements in place because you're available ability to pursue people in that environment or you know maybe you're able to sue a customer or may be able to sew a supplier but I think exchange of confidential information use good judgment associated with that even agreements alone are necessary but not sufficient I think s is the way that I would put it I Patrick eyes totally agree I I tell all my clients that all an agreement does is it gives you the right to sue the person if they violate it down and then the question is how much money is it going to take about time is it going to take can you in fact get a remedy like you said based on where the person with or and when you so I always start you know trust now if the trust isn't there at the beginning of relationship there's no agreement that's going to protect you right absolutely yeah I mean all it does is if you have people that you're dealing with where they're trustworthy and you know you you have that type of relationship then it outlines how things are done in the event that something goes wrong exactly I think same way with employment agreements you know it's like I'm I'm not requesting you to do an employment agreement with me because I don't trust you it's just defining how we deal with things in the event that something goes sideways exactly and I think nba's are kind of in that same genre I agree and at least and and I will say though but they do give you at least that that op sure to know to go after someone do whatever reason becomes a bad actor and runs off with your information yeah now that said you know an old separate conversation I know you'll be having with others you know patents trade secrets trademarks copyright there's a lot of intellectual property rights that are very important to have in addition to an NDA yeah for sure well this has been very informative as always thank you very much Jeremy this is patrick henry from quest fusion with the real deal what matters