Business / Outsourced Team

Does NDA Really Work if You Sign it With Outsourcing Company?

Aug 16, 2017
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what is nda

There is a common sense though in such uncompromising protection of your ideas. Especially if you’re running Apple Inc., that builds its marketing strategy around intrigue and conspiracy. Or if you’re investing billions of dollars into R&D. And truth be told no one would violate confidentiality agreement signed with such companies.

On the other hand ideas worth nothing without execution. If you’re building a company, you need to multiply two things: idea & execution. From such point of view, additional precautions just gain you a little time and initiative against competitors. Specifically, by requiring a signed NDA you may win additional time before your rivals enter the market.

Ideas are just a multiplier of execution

by Derek Sivers

Truth be told, ideas worth nothing without execution. In order to build a successful business, you need to multiply two things: idea * execution. By holding your idea away from competitors sight you can only secure a little bit of market initiative and time for execution. From such point of view, additional precautions are always welcome. Specifically, by requiring a signed NDA from you execution counterpart may secure this time for you.

What is a Non-Disclosure Agreement?

So, what is an NDA? A non-disclosure agreement (aka confidentiality agreement) is a legal contract between two or more parties that outlines confidential information parties are sharing. NDA restricts revealing this info to third parties.

NDA can be Unilateral (one-way), Bilateral, and Multilateral (when many parties are involved). We’ll cover one-way NDA type common for outsourcing development industry.

Here’s NDA How it Works in GBKSOFT:

  1. Fill in a contact form with general information about your project.
  2. General means nothing specific about your idea, but only facts that are common for every project in this industry. Something, from where we can start our research and save time for communication:
    • Your industry.
    • Techs you’re interested in.
    • Development platform (Web or Mobile).
    • Availability of source materials (specs, designs, research).
  3. We get back to you with a signed copy of NDA, or you can send us your own copy and we’ll sign it.
  4. Get into details and keep our mouth shut.

WE'll keep your idea

Note: Non-disclosure agreements can be signed by multiple parties (including investors as a third-party) and at any given time. But it is wise to sign a confidentiality agreement BEFORE you reveal the details of your future project.

Typical NDA may Include:

  • A written agreement to not disclose information.
  • Protect patent rights or intellectual property rights.
  • Specifically, the information parties want to secure.
  • A reservation that sets which info doesn’t fall under NDA.
  • The duration NDA stays valid (typically 2, 3, or 5 years).
  • Remedies for a breach of contract.
  • A governing law under which jurisdiction issues will be resolved.
Note: Some countries like India requires an NDA to be stamped in order to be valid. In other countries, NDA can be just signed by a CEO in order to become a valid enforceable document.

The Purpose of NDA:

  • Business idea protection.
  • Non-disclosure of source code.
  • Protection against copyright infringement.
  • Protection of trade secrets and any other intellectual property listed in NDA.
  • Client Information protection for those cases when you’re upgrading a platform, where your client’s database is stored.
  • Transfer of rights. Say you’re representing a digital agency that subcontracts software development part and you’re not willing to inform the client about this fact.

Consequences of Breaking an NDA

Sadly, but having a non-disclosure agreement protects you only from leaks made by the contractor. Keep in mind other parties involved in the development process besides an outsourcing team.

In a case of violation of NDA, there are several types of penalties court can apply depending on the type of violation, and the monetary value of damage inflicted.

Case #1
Both parties belong to the same legal space (registered in one country).

Most laws that protect trade secrets and confidentiality of the information are based on the Uniform Trade Secrets Act (UTSA). This document sets rigid rules about the confidentiality and type of information that fall under its “jurisdiction”. Including formulas, code samples, programs, devices, prototypes, charts, etc. In some states, it also protects such trade secrets as customer lists.

Legal Penalties in the U.S.

These penalties will usually be related to the nature and severity of the actions that violated the order. For example, some typical penalties could include:

  • A fine.
  • Jail time
  • Contract termination.
  • Loss of future job prospects.
  • Restitution of the value of the stolen information.

Case #2
Parties operate in different legal spaces (outsourcing company is registered in a different country). In such case, it is advised to specifically determine under which governing law the NDA violation issue will be resolved.

If it was determined that the contract is governed by the laws of the State of Delaware – you should be prepared for the additional expenses that will be required for litigation in the United States.

If outsourcing company and customer operate in different countries there is a common practice to make a contract that will be governed by a foreign law. Under such conditions the answer is YES, NDA lays penalties on outsourcing company.

Bottom Line

A typical outsourcing development company spends thousands on marketing activities and client acquisition. Therefore, NDA penalties and fines can be nothing compared to the reputational damage a client can inflict.

In addition, keep in mind that there may be little to no profit a company can gain by revealing client’s information. If you still want to play it safe, we can sign a Non-Compete Agreements (NCA) that will forbid us to work with any other company over the same idea.

Having a Business Idea on Your Mind?

Contact Us, We’ll Sign an NDA and Get to Work!

 

Tony

Tony Sol is the business development manager of GBKSOFT, overseeing the production of all writings for both internal blog and external platforms. He is technical-driven person always looking for new benefits of merging business and software.

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