In every new deal or startup pitch, someone says, “Let’s sign an NDA first.” It’s usually well-intentioned, but often unnecessary and sometimes counterproductive. Having managed more than 600 NDAs a year at IBM, I’ve seen nearly every version imaginable. Here’s what matters.
1. When NDAs Make Sense
(a) Real confidential content. If you’re disclosing something non-public that would lose value if disclosed, such as trade secrets, proprietary technology, source code, algorithms, customer pricing, financial projections, or M&A data, use an NDA. Any such information should be clearly marked as “Confidential” or otherwise identified as confidential at the time of disclosure.
(b) Mutual exposure. When both sides are sharing business plans or financials, a mutual NDA keeps the balance even.
(c) Pre-deal diligence. Before due diligence or data-room access, a narrowly scoped NDA sets clear boundaries on use and duration.
2. When They Don’t
(a) Early-stage introductions. If you haven’t yet shared IP, asking for an NDA too soon can slow momentum and signal inexperience. Investors, accelerators, and large corporates rarely sign NDAs for first conversations.
(b) Public or reproducible ideas. Business concepts that can be reverse-engineered or are already public aren’t protected by NDAs anyway.
(c) Over-broad or perpetual terms. NDAs with unreasonably broad scope or indefinite duration are frequently deemed unenforceable under state contract laws, as demonstrated in cases such as IBM Corp. v. Papermaster (2008) and Whirlpool Corp. v. Ritter, in which courts required reasonable temporal and geographic limitations. However, trade secrets may receive indefinite protection under the Uniform Trade Secrets Act, a principle affirmed by the Supreme Court in Ruckelshaus v. Monsanto Co. (1984). Overly broad terms not only risk unenforceability but can also alienate potential partners.
3. The Clauses That Actually Matter
Most NDAs look similar, but a few terms make all the difference:
Definition of Confidential Information: Clearly define what constitutes confidential information, including (1) materials marked as “Confidential,” (2) information identified as confidential at the time of disclosure, and (3) information that would reasonably be understood to be confidential given its nature and the circumstances of disclosure. Specify standard exclusions (publicly available information, independently developed information, information received from third parties without restriction). Avoid overly broad “all information” language, as courts have consistently struck down such sweeping confidentiality terms (see Religious Technology Center v. Lerma (1995), where the court rejected blanket confidentiality claims).
Use Restriction: Confidential data should be used only for the stated purpose (e.g., evaluating a partnership).
Term: Two to five years is typical for general business information; however, trade secrets and specific intellectual property may require more extended or indefinite protection periods as permitted by applicable law. The term should begin from the date of last disclosure of confidential information.
Return or Destruction: Require prompt return or certified destruction of confidential materials, including all copies and derivatives, when discussions end or upon written request. Allow retention of copies required by law or regulatory compliance with appropriate safeguards.
Jurisdiction and Governing Law: Specify both the governing law and venue for disputes, typically your home state’s laws and courts, ensuring the chosen jurisdiction has a reasonable relationship with the parties or the transaction.
4. A Practical Perspective
In over two decades of deal work, fewer than 1% of disputes I’ve seen turned on an NDA. The bigger issues usually involve scope creep, when information shared informally later gets reused without clear boundaries. A simple, balanced NDA, combined with disciplined internal handling, usually avoids those problems.
5. Takeaway
NDAs aren’t magic shields; they’re reminders of professionalism. Use them when confidential material is at stake, keep them short, and make sure they support the conversation rather than stall it.
Gary Lipson, Esq.
New York attorney focusing on intellectual property, licensing, and strategic transactions.
This article is for informational purposes only and does not constitute legal advice.