For companies that need to protect ideas, inventions and other intellectual property, nondisclosure agreements can be essential.

Every day, businesses in Texas must share confidential information with other companies or individuals in order to achieve their ultimate goals. Yes, the same information sharing that is an essential component of getting business donn e opens the door to new risks for companies. The damage that can result when information is misused or received by the wrong persons can be irreparable and even make the future livelihood of a company impossible. What can be done to protect against these types of things?

There is a certain type of legal contract that businesses can and should use prior to sharing any proprietary information or intellectual property. These are called either nondisclosure agreements or confidentiality agreements.

When a nondisclosure agreement may be used

There can be different scenarios that warrant the use of a confidentiality agreement. When an entrepreneur wants to approach another party for a proposed partnership, Forbes explains that a nondisclosure agreement should be used. This type of contract is also beneficial to have in place prior to having discussions with other potential business partners such as distributors or investors.

There is one important situation when a confidentiality agreement may not be able to be used and that is when venture capitalists are involved. These types of investors are often reluctant to sign confidentiality agreements. Businesses seeking this type of funding may need to forgo such protections.

Key elements of nondisclosure agreements

The name of these contracts implies the keeping of secrets and this is certainly one type of protection they offer. However, nondisclosure agreements can and should also be used to protect against other parties using information for their own benefit. For example, one company would not want to share information about a new invention with a second company only to later see the latter release a new product based upon the shared information.

Confidentiality agreements should carefully outline the type of information covered by the contract. This includes the delineation of electronic, oral and hardcopy information. Time parameters should also be given noting if and when the agreement expires. If there are any exclusions to the protections given, these must also be detailed in a contract.

Prudence is advised

StarterNation recommends that companies employ a reasonable sense of discretion before engaging in confidential discussions with other parties. Some upfront homework may return facts that make a company decide to not pursue a relationship even before any sensitive data needs to be shared. This can negate the need for a contract and still keep information secure.

While the only true way to protect intellectual property is to never share it with anyone else, this is not practical or possible. With this in mind, Texas businesses should always consult with an attorney to appropriately learn how and when to safety share their company information.