Photo Credit: Philippe Moreau
It may seem like it is a great honor to be asked to sign a non-disclosure agreement, or NDA. By presenting you with an NDA to sign, someone apparently believes that they have some very valuable, even secret information that they actually want to show you. They also think that you are so dangerous and/or clever that they couldn’t possibly show you this secret information without first obtaining your written agreement to not use or disclose it to anyone.
Often the signing of an NDA is the first step in buying or selling a website business — in fact, on Flippa, many high-end website listings are protected by an NDA. If you are a prospective buyer, you may want to find out about the seller’s traffic, revenue, customers, and other non-public information that would normally be considered private and confidential. If the seller is prepared to share this information with you in the hopes of ultimately selling you their website, the seller may present you with a NDA to sign.
Why an NDA?
Why take this extra step? The seller might have included some confidential information in the listing’s documentation, such as a customer list, and they don’t want you to use this information if ultimately a deal is not consummated. Similarly, a seller will be reluctant to even share its traffic or revenue data with someone who is or may become a competitor without written assurances that this sensitive data will not be used or disclosed with anyone else.
Having a written NDA in place is often seen as a good method for protecting the seller’s confidential information. A good NDA will make it clear precisely what is to be considered confidential, and will also clearly restrict what the recipient of this confidential information is and is not permitted to do with it.
When an NDA is not enough
Nevertheless, some prudent sellers are reluctant to rely on an NDA alone. At the end of the day, sharing very sensitive confidential information with anyone, especially an actual or potential competitor, can be very damaging, and once the information “gets out there” to the public, it is often too late. Likewise, once someone sees your confidential information, it is often impossible for that person to merely forget that information just because they signed an NDA. In addition, enforcing an NDA is often difficult due to the expense, the location of the parties, and also sometimes the difficulty in proving who exactly released the confidential information.
With all this in mind, a prudent seller will not always release particularly sensitive information under an NDA, or at least not until there is evidence of a greater commitment and security, which can often be found in the next step in buying and selling a website business, which is often a Memorandum of Understanding, or Offer to Purchase.
When asked to review an NDA, the first thing I check is whether it is a Mutual NDA. A Mutual NDA is an NDA that is a “two-way street”, i.e. it provides for each party sharing information with the other, not just one party. If the relationship requires mutual sharing (for example, if the prospective buyer shows the seller some of their financial records as proof of ability , a Mutual NDA is often appropriate, and the fact that both parties are getting treated equally often provides comfort. As a lawyer, a Mutual NDA gives me greater confidence that the NDA is a good agreement to sign.
Most of the NDAs I see are fairly standard, and an experienced website lawyer will be able to review such agreements in a matter of seconds or minutes. Accordingly, if you are presented with an NDA and are unsure of what it says and what obligations it imposes, it is easy to get a lawyer to provide a very quick review.