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

  • Rating — 5 (5 voices)
  • by Tony
  • Updated on November 14, 2019
  • Read —
    4-5 minutes
what is nda

There is a common sense in such uncompromising protection of your ideas. Especially if you’re running a company like 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. In other words, to build a successful business, you need to multiply your idea & its execution. From such point of view, additional precautions just give you a little time before your rivals enter the market.

Ideas are just a multiplier of execution

by Derek Sivers

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 information to third parties.

NDA can be Unilateral (one-way), Bilateral (need to be signed by both parties), and Multilateral (when many parties are involved). In this article, we’ll cover one-way NDA that is common for outsourcing development industry.

NDA signing process at 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 to 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. We’ll 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 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 not to disclose information.
  • protect patent rights or intellectual property rights.
  • include a reservation that sets which info doesn’t fall under NDA.
  • include a duration NDA stays valid (How long are NDAs valid? Typically it’s 2, 3, or 5 years).
  • set remedies for a breach of contract.
  • specify a governing law under which jurisdiction issues will be resolved.
Note: Some countries like India requires 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 the cases when you’re upgrading a platform where your client’s database is stored.

Therefore, signing a non-disclosure agreement for software development is a way to protect your idea or the fact of using outsourcing as a whole.

Consequences of Breaking the NDA

Sadly, but having a non-disclosure agreement can protect you only from leaks made by the contractor, not by other parties involved in the development process.

In the case of NDA violation, 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 US laws that protect trade secrets and confidentiality of the information are based on the  (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 such 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 NDA. For example, some typical penalties for breaking a non-disclosure agreement include:

  • A fine
  • 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, for example, 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 an outsourcing company and a 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 an Innovative Business Idea in Your Mind? We’ll Sign an NDA and Get to Work!

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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