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BusinessColumnistsJamie Herzlich

Small Business: protecting your secrets with nondisclosure agreements

Many inventors and entrepreneurs are reluctant to reveal too much about their product or idea in the early stages.

They want some security that they can pitch their idea safely, and a nondisclosure agreement (NDA) can help provide that. But not everyone will sign one.

"When you're faced with a company that won't sign it, that's when you have to regroup and evaluate risk," says Richard Stim, a California attorney and intellectual property blogger who is co-author of "Nondisclosure Agreements: Protect Your Trade Secrets and More" (Nolo; $39.95).

Weigh risks. You must weigh whether protecting the proprietary information is more important than risking a potential business opportunity by insisting on an agreement, he notes.

"Most people, unfortunately, take their ideas to the grave, and then they're worthless," says Andrew Hazen, co-founder of Hicksville-based Angel Dough Ventures, an early-stage seed fund, and CEO of LaunchPad, an incubator/accelerator for startups that has five Long Island locations. Since co-founding LaunchPad in 2013, he's heard more than 500 pitches and signed zero nondisclosures.

"It didn't stop anyone from pitching to me," says Hazen, who won't sign them because he hears so many pitches a year and may already be invested in a similar business.

Research. Still, companies should always research an investor before disclosing any proprietary information, he advises.

"I would be pretty selective if I was a small-business owner in choosing who I would disclose a secret to," adds Stim.

That's if you even have a secret to protect in the first place. "All an NDA is doing is protecting your business secrets," Stim says. "If you don't have any secrets, you can't have a nondisclosure agreement."

Some benefits. But if you do, it can be beneficial to try to get parties to sign one, says William Collard, principal of Roslyn-based Collard & Roe PC, an intellectual property law firm.

"I've had clients that have been able to enforce them," he notes. "My standard recommendation is to always at least ask."

An NDA should include such information as the names of the parties the NDA covers, the scope of information being protected, the length of time the agreement covers and what happens if there's a breach, says Collard.

If a party won't sign one, it's not necessarily a "red flag," he notes. But always find out why they won't sign it, because it may provide insight into their intent and help you assess whether to disclose the information or not, he says.

Patents. As a precaution, entrepreneurs who have a potentially patentable product or invention should file for a full patent or at the very least have a provisional patent on file, which gives them one year to file for a full patent, says Collard.

"It gives you the right for one year to say your idea is patent pending," says Brian Fried, president of InventorConsulting.com, a Melville-based consulting firm, and president of the Inventors and Entrepreneurs Clubs of Nassau and Suffolk Counties.

It can serve as a deterrent, says Fried, who makes sure he has a provisional patent filed before pitching ideas to new prospects.

No details. If you lack that kind of protection, you can also keep conversations broad, he says. Talk about your idea in general terms without revealing intricate details, suggests Fried, who also advises keeping an inventor's log documenting any interactions (i.e., emails, phone calls or meetings).

It doesn't hurt to ask someone to sign a nondisclosure, says Fried; he says he's had potential licensees do so on some of his own inventions.

But it wouldn't necessarily be a deal breaker if they didn't.

"You don't want a nondisclosure agreement to come between you and an opportunity," says Fried. "There's other ways to protect yourself."

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