Sometimes no matter how great the intentions and excitement among new or prospective partners in a startup business, when things go wrong, they really wrong. Take the matter of the Winklevoss twins, Mark Zuckerberg and Facebook. The Winklevoss twins alleged that they hired Zuckerberg, by verbal agreement, to build a website platform for an equitable share of the business they were developing, HarvardConnection. While Zuckerberg worked on the HarvardConnection platform for the Winklevoss Twins, allegedly, he was working on “TheFacebook.com” which later became Facebook. The Twins alleged that Zuckerberg took they idea and used it to develop what later became Facebook and for that theft of proprietary information Zuckerberg should pay. The lawsuit that ensued ended up with a $65,000,000 settlement in favor of the Winklevoss Twins.
The Missing Puzzle Piece: The NDA – Non Disclosure Agreement for a Startup Business in Massachusetts
What was missing here in the arrangement between the Winklevoss Twins and Zuckerberg was a nondisclosure agreement or NDA. NDA’s in Massachusetts should be drafted by an experienced attorney with the ability to foresee potential problems with the enforceability of the agreement. Had the Winklevoss twins had a NDA instead of a verbal agreement without any teeth, it is possible that a court may have found that the Twins were rightful owners of Facebook. While $65,000,000 is obviously nothing to scoff at in a settlement, given the current valuation of Facebook, $65,000,000 seems like a drop in the bucket.
How to Draft an Airtight NDA
It is possible that a NDA may be found unenforceable by a court for any of the following reasons: if the language used in the NDA is too broad, fails for lack of consideration, is too restrictive in scope, duration, or geographic area, is illegal, unconscionable, where the intellectual property that is the subject of the agreement is not limited in the NDA, or where one side is under duress for the contract signing. Because the goal of opposing counsel, when the NDA between parties is at the heart of a lawsuit, will be to tear apart every line of the NDA, an NDA must be drafted with language that is as airtight as it can possibly be.
Let’s take a deep-dive into the factors mentioned in the previous paragraph that make enforcing a NDA difficult, looking at ways to make these paragraphs “have teeth.”
Consideration
Consideration is one of the basic elements necessary to form a valid, enforceable contract in Massachusetts law. Like eggs to an omelet, consideration is a basic and necessary contract component. What is consideration, you ask? Simply put, consideration is the bargained for exchange of something between the parties involved in a contract. For example, in the employment setting, an employer offering an employee a job in return for that employee signing a NDA has created consideration for that NDA. In that case, the employer is giving a job in return for the signed NDA, and the employee is signing the NDA in return for the job.
Scope of the NDA
A successful NDA should be narrow in scope. What I mean is the language used in the NDA to describe the intellectual property that is to remain confidential should specifically name that property. A court may find a NDA unenforceable if, instead, the NDA limited the employee to nondisclosure of all company information (for example). Proprietary information or trade secrets should be named in the NDA so that it is clear exactly what information cannot be shared. Drafting this aspect of the NDA with specificity is more likely to make the provisions of the NDA related to disclosure of trade secrets or proprietary information enforceable.
Illegal Subject Matter
A contract will not be found enforceable by a court when the subject matter of the contract is illegal. For example, a contract provision in a NDA which attempts to proscribe the employee from reporting company behavior might be illegal if the behavior were required to be reported because of an employee’s legal duty to report that behavior.
Unconscionability in a Contract
Concepts such as superior bargaining power, lack of mental capacity of one party, or even lack of consideration can make the enforcement by a court of a NDA unconscionable. Court, when assessing a NDA, will take into consideration whether the contract provisions are unconscionable. One method of limiting the risk of a court taking this stance is to make sure that all contract provisions are reasonable within that business sector or industry.
Is it Secret, Is it Safe?
I apologize for the “Marathon Man” reference, which shows my age, but the question “is it secret, is it safe?” must be asked when considering trade secrets or proprietary information held by a company. Since the main purpose of a NDA is to ensure that the nondisclosure agreement protects trade secrets or proprietary information, it is imperative that the information that is being protected under the nondisclosure agreement is actually secret and safe. In other words, if the information in the NDA is known to the general public or easily accessible to the general public, that information is not likely to be considered a trade secret for the purpose of establishing a breach of contract and resulting damage award in a court.
Employment Lawyer at Work
Because our attorney is experienced in contract review and drafting, and understanding the legal underpinning which can make or break a nondisclosure agreement or NDA, you would be well advised to contact attorney Gaudet to review or draft your NDA. The practice of law in the context of employment law and specifically nondisclosure agreements requires great attention to detail, to the circumstances and sphere that your startup or company operates in. Our attorney is prepared to draft a nondisclosure agreement based on a free consultation and review of your circumstances.
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