Search results for nondisclosure

Why You Shouldn’t Use a Finder to Find Venture Capital

Picture of a compass (for determining direction based on magnetic North)

I recently spoke with three? startup entrepreneurs who had just retained a finder to locate venture capital in exchange for an equity stake in the form of warrants (the right to purchase shares at a specified price by a specified date). They got very nervous when, after reading their agreement with the finder, I told them the business and legal reasons why retaining the finder was a bad idea:

  • The finder would start by sending nondisclosure agreements to targets – but VCs generally will not sign NDAs and are likely to think the entrepreneurs don’t know what they are doing.
  • The finder then would send an Executive Summary to each VC. But virtually no ExSum that is sent to a VC cold is read, let alone responded to.
  • Next, the finder would make follow-up calls to the VCs. But such follow-ups will be of little, if any utility. The way to get to a VC is via an introduction from someone that the VC knows and trusts. Furthermore, VCs who are interested will not want the finder’s answers to questions – they will want to talk to the entrepreneurs.
  • More fundamentally, VCs will be suspicious of, and will have little interest in engaging with, entrepreneurs who use finders. The typical VC believes that if you cannot figure out a way to be introduced by someone that the VC knows, you don’t have what it takes to build a successful business.
  • The finder’s form of warrant agreement gave him anti-dilution protection – a feature that would turn off many VCs and would make them think, again, that the entrepreneurs don’t know what they are doing.
  • The finder required that the entrepreneurs indemnify him against any claims associated with his activities, even if the claims arise from the finder’s negligence.

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Stupid Provision Pops Up in NDAs

Dunce cap on a stool in the corner of a room

Twice during the past week clients have asked me to review (someone else’s) nondisclosure agreements (NDAs) that contain a stupid provision of a type that I had not seen for years. That provision is as follows:

RECIPIENT shall not be liable for inadvertent disclosure or use of CONFIDENTIAL INFORMATION nor for unauthorized disclosure or use by persons who are or who have been in its employ or with whom it has contracted provided that it uses the same degree of care in safeguarding such CONFIDENTIAL INFORMATION as it uses for its own CONFIDENTIAL INFORMATION of like importance.

I consider the provision stupid for the following reasons:

Why Your Lawyer Need Not Sign an NDA

Cover page from California Business and Professions Code

Once in a while, when I send an engagement letter, the prospective client wants to add confidentiality provisions to protect its trade secrets. The following is the explanation that I provide as to why such provisions – let alone a separate nondisclosure agreement (NDA) – are not required in an attorney’s engagement letter.

California Business and Professions Code Section 6068 specifies the fundamental obligations of an attorney. Subsection (e)(1) states that each attorney must “maintain inviolate the confidence, and at every peril to himself or herself to preserve the secrets, of his or her client.” (Emphasis added.) Attorneys in other states have similar obligations.

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NDA Nets Plaintiff $50 Million

Dur-a-Flex Logo

Dur-a-Flex v. Laticrete International illustrates the value of a well-drafted nondisclosure agreement (NDA) – not to mention one that includes an attorneys’ fee provision.

Dur-a-Flex developed a trade-secret process for producing colored sand. Laticrete was a long-time Dur-a-Flex customer and the only customer for this product.

When Laticrete’s orders dropped significantly, Dur-a-Flex suspected that Laticrete was using the Dur-a-Flex process in violation of the NDA that Laticrete had signed.

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Using Someone Else’s Agreement Might Be a Mistake

Paper stamped "Rejected"

Earlier this week, I was called by a professional services provider (“Chelsea”) who was interested in my services. Chelsea had presented a confidentiality agreement – which she had found somewhere – to a prospective client for a large project. The prospect marked up the agreement pretty heavily, in ways Chelsea did not understand, and she wanted to make sure that her legal interests were protected.

I asked Chelsea to forward the marked-up agreement to me so I could see how much work I would have to do to help her. Within one minute, I could see the source of the problem. I called Chelsea. An edited transcript of our conversation follows:

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Legal Services

Statue of Justice representing legal services

This description of Dana Shultz’s legal services is an Advertisement under Rule of Professional Conduct 1-400, Standard 5.

Dana Shultz provides the essential legal services that startup and early-stage companies in the San Francisco (California) Bay Area typically need. You may read many Client Testimonials about Dana’s services.

The following are representative. Please contact Dana if you have a requirement that is not listed here.

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Back to the Future? No, Back to the Past – Ancient NDA Discovered

A client recently was given, and asked me to review, a nondisclosure agreement that made me chuckle because it looked like something left over from decades ago. I was especially surprised because this NDA came from a well-known computer-products company.

Some of the document’s more endearing qualities:

Top Ten Legal Tips for Independent Contractors

I just made available on the Downloads page (sign up using the drop-down list in the sidebar) “Top Ten Legal Tips for Independent Contractors,” a document that describes how independent contractors can avoid exposing themselves to unnecessary legal risks.

Here are the titles of the ten tips, which are discussed in greater detail in the document:

  1. Choose the right type of legal entity for your business
  2. If you choose a corporation or LLC, comply with applicable formalities
  3. Buy the right types and amounts of insurance
  4. Identify and protect your intellectual property
  5. Use your form of client agreement whenever possible
  6. Be careful when assigning or waiving intellectual property rights
  7. Be careful when collaborating or subcontracting
  8. Be careful with nondisclosure / confidentiality agreements
  9. Avoid oral agreements whenever possible
  10. Understand what distinguishes independent contractors from employees

For more information about distinguishing independent contractors from employees (tip 10), please see Avoiding the “Independent Contractor” Trap.

This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact an attorney directly.

Need a Sample Confidentiality Agreement / NDA?

I am pleased to make available as Free Downloads using the Sign Up button in the sidebar the sample Mutual and Unilateral Nondisclosure Agreements that I originally made available via Legal OnRamp.

This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact an attorney directly.

Will that NDA’s Residuals Clause Cost You your Trade Secrets?

Envelope stamped Top Secret, symbolizing a residuals clause in an NDAAnyone who has worked in technology is familiar with nondisclosure agreements (NDAs). Differences among NDAs usually are small; they tend to cover the same territory in similar ways. However, NDAs from large companies often contain what I consider a most pernicious provision: A ” residuals clause “.

A residuals clause excludes from confidentiality obligations information that the recipient’s personnel retain in their memories. Here is a typical provision, from the Microsoft Confidentiality Agreement for Licensing Discussions:

“Further, the Receiving Party shall be free to use for any purpose the residuals resulting from access to or work with the Confidential Information of the Disclosing Party…. The term ‘residuals’ means trade secret information in intangible form, which is retained in memory by persons who have had access to the Confidential Information, including ideas, concepts, know-how, or techniques contained therein.”

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