According to Patrick O’Malley, attorney and business professor, many non-disclosure agreements simply don’t need to exist. But how do you know if yours is worth it? Let’s discuss three non-disclosure agreements ranging from the good to straight up ugly. Along the way, we’ll learn about the importance of detail, the value of letting go, and the reality of what even counts as an NDA in the first place.
Questions in this Episode
- What makes a good NDA?
- How can drafters make NDAs more usable?
- What are the potential red flags to be aware of?
- How can drafters prevent “the bad” NDA from happening?
- How do you know if you require an NDA?
A Decent NDA
The first document comes from Pace University in New York. This NDA qualifies as good, but there are a couple of surprises.
| 1. | As used herein, Confidential Information shall mean the information described in Exhibit A and any information that relates to Pace’s or its consultants’ or contractors’ past, present and future research, development, business activities, products, services, technical knowledge, and/or personally identifiable student and employee information that may be received from Pace or from Pace’s consultants or contractors. Without limiting the generality of the foregoing provisions of this paragraph 1, all discussions between Vendor and Pace in relation to the Business Purpose shall be deemed Confidential Information. |
Recitals are beneficial because they are clear statements that communicate the purpose of the document. Even though the first document’s preface was not labeled as a recital, it is still a good one.
Section 1 of the first document is very well written for 2 reasons.
- They cite a specific exhibit that would provide much more detail and improve the document’s clarity.
- It includes worthy things to protect like business activities and personally identifiable student employee information.
This document gives us a reason to call it “good,” only to let us down. Later in the document, everything else is labeled as confidential information. But why did we spend so much time and effort on exhibit A and personally identifiable student employee information when it had to cover everything in the end?
The catch-all version in Pace University's NDA cheapens the experience for me. - Patrick O'Malley #ContractTeardown Click To Tweet
Section 3 places control in the hands of the vendor, who is not required to protect the information himself. The vendor is typically a small businessman who is unaware of the level of protection provided by the University. This provision should be scrapped because it raises more questions than it solves.
What’s in a Good NDA?
The general consensus is that most NDAs should not be said at all. To justify signing an NDA, you must have substantial hard data. For example, trade secrets, intellectual property, or valuable information such as public health and safety.
Section 2 contains all of the standard information about court orders, except for public demand information. Overall, it’s a good clause.
Section 4 is a good provision that benefits all parties. This provision does not impose a significant burden on small business owners. If you receive a subpoena, you must notify the other party via a notice. That’s not a difficult task. This is an example of good drafting that could lead to a good result.
| 4. | If Vendor or any of its Representatives is requested or required to disclose any of the Confidential Information pursuant to a subpoena, court order, statute, law, rule, regulation or other similar requirement (a “Legal Requirement”), Vendor shall immediately provide written notice of such Legal Requirement to Pace. If Vendor or such Representative is legally compelled to disclose such Confidential Information, or if Pace in writing waives compliance with the provisions of this Agreement, Vendor or such Representative may disclose, without liability hereunder, such Confidential Information in accordance with the Legal Requirement. |
In section 6, they should use “or” instead of “and,” but it’s good. 5 years is a long time, but in bad NDAs, it’s indefinite, which is absurd. Why would you grant someone the right to sue you after 7, 10, or even until your death? You’re simply giving them an indefinite and open-ended cause of action against you.
| 6. | Each party’s duties under this Agreement will continue until the earlier of: (a) five years after termination by the parties of their discussions relating to the Business Purpose; and (b) the execution by the parties of a definitive written agreement that expressly supersedes this Agreement. Notwithstanding the foregoing, Vendor’s obligations set forth in paragraph 5, above, shall be perpetual. |
Sunset clauses are useful in almost any type of contract. The second part of subsection (b), which states that a future agreement supersedes the present agreement, is a good provision. We know that once we sign another contract, we can toss the previous one out and forget about it.
A Laughable NDA
Document 2 requires the investor to sign a non-disclosure agreement (NDA). Here’s a tip: When visiting the VC’s office, the best way to get shown the door is to demand an NDA. They’ll just laugh in your face.
The first section is amusing. They should not even be requesting an NDA from the investor. It states that anything relating to them is protected by this agreement, even if you dig it up at your own time and expense. This is the most ridiculous provision you’ll ever see in an NDA.
| 1. | Definition of Confidential Information |
| All information provided to Investor by the Company or obtained by Investor in its investigations of the Company, together with the content of any and all discussions, information, negotiations and correspondence relating to any potential purchase or development of the Company, whether written or oral, and any information independently obtained or prepared by Investor or any Representative (as defined below) in connection with the Company, along with the fact that the Company may be considering a sale, will be considered confidential and is collectively referred to in this Agreement as the “Confidential Information.” For the purposes of clarification, “Confidential Information” also includes all information disclosed to Investor regarding the Company and its owners and managers. |
Section 4 indicates that they continue to be presumptuous. To begin, what kind of cooperation do they require? Do they want you to hire an attorney to get the subpoena or court order quashed? It’s insane.
| 4. | Government Orders and Requests |
| Investor shall cooperate with the Company in an effort to reasonably limit the nature and scope of any required disclosure of Confidential Information. |
Section 6 talks about the accuracy of confidential information.
| 6. | Accuracy of Confidential Information |
| By executing this Agreement, the Company makes no representations or warranties as to the accuracy or completeness of the Confidential Information provided to Investor. |
Whoever wrote this has got a lot of sport.
Patrick O’Malley said “Everything we’re going to tell you is going to be confidential, everything you figure out by yourself is going to be confidential and oh, by the way, all of the stuff we told you – you cannot count on any of that being true.” One has to wonder, what is this section even doing here?
It's ridiculous to have a provision that addresses the accuracy of confidential information by expressly denying that information is false. - Patrick O’Malley #ContractTeardown Click To Tweet
Is This Even an NDA?
Document 3 is not what it appears to be. It’s a non-disclosure agreement in connection with real estate brokers. Real estate brokers act as go-betweens, passing information from buyer to seller. What’s the point of signing an NDA in this situation? They’re trying to sell the property, so why would they try to limit the audience that might be interested in purchasing it?
When you look deeper into real estate NDAs, you realize they aren’t NDAs at all. Although non-disclosure is written at the top, it is only a small part of the heavy lifting and serious contractual relationships that are created in this document. There’s a lot of extraneous material that shouldn’t be here. Forms issued by real estate regulators that cover many of these scenarios are available. This NDA contains information about an escrow deposit – how unique and amusing.
Show Notes
THE CONTRACTS:
Pace University Non Disclosure Agreement
Investor Non Disclosure Agreement
Restaurant/Broker Non Disclosure Agreement
THE GUEST: Patrick O’Malley has been a business attorney of one sort or another for about 20 years. He has also been a business executive, running the world’s first incubator for cannabis businesses. Now he teaches MBA students and likes to turn an academic lens towards his legal work. He can be reached at patrick.o.omalley@gmail.com.
THE HOST: Mike Whelan is the author of Lawyer Forward: Finding Your Place in the Future of Law and host of the Lawyer Forward community. Learn more about his work for attorneys at www.lawyerforward.com.
If you are interested in being a guest on Contract Teardown, please email us at community@lawinsider.com.
Interview Transcript
Mike Whelan [00:00:33] Hey, everybody, welcome back to the Contract Teardown show from Law Insider. I’m Mike Whalen. The purpose of the show was exactly what it sounds like. We take contracts, we beat them up. We are mean to them, insult them and their ancestors, and then we lift them up at the end to make them feel warm and fuzzy. I hang out with smart people like Patrick O’Malley here. Sir Patrick, how are you today?
Patrick O’Malley [00:00:55] Fine. Thank you.
Mike Whelan [00:00:56] I’m sort of excited, I have to say, about this conversation because every time I ask people, what do they want to talk about? They say NDAs. And I find this discussion fascinating because nobody likes them. I’m not sure anybody, you know, any of them are even enforceable, but everybody brings them up and everybody spending so much time with them. So the fact that we are now going to rant about NDAs makes me so happy. We’re going to root our conversation — let me share this document real quick, Patrick. This document from Pace University, a non-disclosure confidentiality agreement that’s going to sort of be the basis of our conversation, but we’re going to spin off of it a bit. Before we dig into it, Patrick, what is this document? When are we going to see this thing? You can preface why NDAs are the worst. We’ll talk about it later. What is this document?
Patrick O’Malley [00:01:37] Sure. Well, let’s let’s start with the narrow. So this particular document I pulled off the website. But as you can see, its Pace University, which I believe is in New York state. And so the subtitle of my lecture notes, because I’m a professor is the good, the bad and the ugly. So this Pace NDA qualifies as good doesn’t mean it’s perfect. There’s even a couple of little weird things in there, but by and by and large, it is head and shoulders above the normal NDAs I see out there, which have all sorts of ridiculousness built into them.
Mike Whelan [00:02:14] Gosh and I again, having never practiced in house. I find this fascinating when people tell me this, but the amount of time that lawyers spend on NDAs is just. You would think by now we’d be, we’d be artists with these things. Well, before we dig into that and you mentioned you’re a professor, tell us about your background. What’s your relationship with these kinds of documents? When are you running into them?
Patrick O’Malley [00:02:33] Oh yeah. Well, I’ve been a business attorney of one sort or another for about 20 years now. And, you know, I’ve also been a business executive. I — a recent gig for about six years. I ran the world’s first incubator for cannabis businesses, making products. And so as you can imagine, I was seeing a lot of NDAs coming in and going out. And, you know, just I started to form very definite opinions about those NDAs and, you know, and now I’m teaching MBA students. And so I kind of started taking more academic lens to to my legal work and, you know, saying, Well, why are we doing these things? Quite frankly, because ninety nine point ninety five percent of the time, they either don’t make any sense or maybe they’re even, you know, socially harmful, but we can get into that in a minute.
Mike Whelan [00:03:33] Right. So what we’re going to do is I’m going to, like I mentioned to you in prep, I’m going to run through this Pace document, but I also want you to feel totally free to nerd out on your professorial ness as much as you want into comparing with these other documents. Because I do think this framing of the good, the bad and the ugly is really interesting for these kinds of documents. Before I do any time you see, you know, a contract nowadays, there’s a preface at the beginning that says, What the heck is this even for? I want to get to that. If you look at this Pace document, you know it talks about to protect the confidential information which might be disclosed. They start with sort of a background. Let’s do the same. Let me ask you, you know, in the decision making process of should I use an NDA? What do you think our first paragraph would be for that kind of analysis, for that kind of conversation, should we do these things?
Patrick O’Malley [00:04:23] Well, most of the time, no. You know, I think as far as recitals go, although this wasn’t specifically labeled a recital, that’s clearly what it is. And I’m actually a big fan of recitals. You know, not not the kid type, but you know, the contract type because at the end of the day, you’re writing a contract and if everything works out, nobody’s ever going to read it again. But you know, something go sideways that everybody’s going to start reading it and people who have no idea what’s going on. Judges, whoever. And so recitals, really? How to help keep everybody on the same page, so to speak, so I think this is a good recital that they are, that they got out here, which is like, why are we even signing this? Well, to protect this information? And that’s that’s good clear, very clear statement of what they’re trying to accomplish with this document.
Mike Whelan [00:05:17] Well, speaking of the information, I mean that again, the recitals really rooting that as what we are talking about is confidential information protecting it. One goes further, it says, as used herein, confidential information shall mean the information described in Exhibit A.. It talks about by references other document that will be attached talked about personally identifiable student employee information. What do you think about Section one? How they’re defining confidential information as related to the purpose of this kind of document?
Patrick O’Malley [00:05:45] Well, I think they did a very good job with this. Two reasons. You know, they they cite a specific exhibit. So presumably that’s going to have a lot more detail. But then as kind of a saver? Saver sort of function, they talk about, you know, some more general things like business activities. And obviously, you know, personally identifiable student and employee information would be a very worthy thing to, you know, to protect as much as you possibly can.
Mike Whelan [00:06:14] Yeah. And it talks about all discussions between like it makes a default category, all discussions between vendor and Pace in relation to the business purpose. Which again, is capitalized as a defined term, shall be deemed confidential information. Do you like the catchall version there?
Patrick O’Malley [00:06:29] Well, yeah. Well, you know, I mean, lawyers got a lawyer, right? But it’s it’s it’s kind of like, why did we go through all this really excellent work with the Exhibit A and, you know, specifying student employee information and then say, Oh, by the way, everything else, it kind of cheapens the whole experience. At least I don’t know how you feel about it, but I feel very let down.
Mike Whelan [00:06:52] Yeah. And I mean, and then you look at two, obviously, and it makes, you know, some exceptions and says, but it’s not these other things. So it has this default of everything’s confidential unless we we say it’s not. And and again, I know that throughout this conversation, we’re going to talk about the big picture. But thinking of the big picture is this, you know, you identified this document as a good, you know, the best of the three NDAs. If if you’re advising someone to use in NDA and you mentioned that the vast majority of the time, you don’t need it. Presumably, you think this is a scenario where you do need it. Does this kind of relationship with confidential information where everything’s confidential unless we say otherwise? Do you think that fits the purpose that you would identify as a good NDA?
Patrick O’Malley [00:07:39] Well, you know, my my general feeling is certainly that most NDAs shouldn’t be signed at all. And really, what I’m looking for to even justify doing an NDA is some serious hard data like unique trade secrets. You know, real intellectual property like here there’s HIPAA information or payment or financial info. Those are all very, you know, important worthwhile things to to protect public health and safety information. And so I think that if if you if you’re covering any of those bases in an NDA, then you definitely want an NDA and you can certainly throw in all this other stuff. But you know, it’s not going to get you in trouble, obviously, but it does seem to sort of water down the whole specificity that they talked about and exhibit A or in the, you know, in the identifiable information. So and then number two, obviously, you know, you’ve got all the normal exceptions, you know, court orders, public domain information, that kind of thing. So, you know, there’s nothing wrong with with paragraph two, with those exceptions to confidentiality, those are pretty standard stuff.
Mike Whelan [00:08:56] Well, in a move into three, I mean, everything is only as good as your, you know, responsibilities that you put on people it talks about vendor will maintain the confidentiality of the confidential information, using procedures not less rigorous than those the vendor uses, the vendor may disclose. There’s a lot of control in the hands of the vendor, but to sort of set the terms of what’s responsible use of information. What do you think about Section three there?
Patrick O’Malley [00:09:22] Well, I think actually Section three is where the in-house counsel and Pace, and maybe they have a very good reason for this. But just reading this as an outside, you know, non pace lawyer and New York lawyer, I look at this and say, Well, gee, basically, if your vendor is a real slob with protecting his information, then he’s not really obligating himself to protect the information. Now, you know, obviously you also can’t say, Oh, you have to protect it as much as pace would protect it. Because this this guy, this vendor, this small might be a small businessman, but he doesn’t have any idea of what kind of protections you have in place. So, you know, I think honestly, it probably should just scratch that first sentence or two as just raising more questions than it than it actually solves, and I think that created problems for themselves. So yeah, but that’s just my opinion and you know how it is. A lot of times these are written in there for a certain reason. Somebody have a specific mind.
Mike Whelan [00:10:20] There’s a story you can tell when there’s a story in a contract, right?
Patrick O’Malley [00:10:24] And it’s kind of like, you know, bad facts make for bad law. Well, you know, maybe you got a bad fact story that makes for a bad contract provision, but this is the only failure, and it’s not a big deal, but this is the only sort of failure in this particular neighborhood.
Mike Whelan [00:10:38] When you go and jump into four, you see this in NDAs a lot that basically like, we can’t bind you outside of what a court tells you to do, right? And that’s what for sort of digs into. But but the part of that that creates additional requirements is that you have to immediately provide written notice of such a legal requirement to Pace. So what do you think about this as a way to handle if you in fact can’t control that situation because of a court?
Patrick O’Malley [00:11:03] Well, I think this is, you know, this is definitely a good provision for all parties. And, you know, in one of the and the ugly are know the bad NDAs we’re going to talk about later. There’s a whole lot of ridiculousness around this particular issue, but here you’re not putting enormous burden on the the person the small businessmen like to say basically, Oh, you know, if you’re getting a subpoena, you got to let us know. That’s not terribly difficult. So I think again, this is an example of good drafting, which actually at the end of the day might actually yield a good result as opposed to just, you know, paperwork.
Mike Whelan [00:11:42] And maybe again, this is me as a as a novice talking to a professor, but I’m looking at six and it talks about superseding and coming above this. It says that basically this is going to last until five years has happened, you know, past the talking about the business purpose and that they have a new agreement that expressly says this supersedes the previous confidentiality, the previous NDA. What do you think about six in that way of handling that?
Patrick O’Malley [00:12:16] Sure. Well, you know, I think actually that should be used or rather than ands, but the point’s still fine. But basically, I like this, you know, five years is a long time, but in some of the bad NDAs, it’s indefinite. Like, you take it to your deathbed sort of thing. And that’s just obviously ridiculous. The way I say to try to explain it to people is, why would you sign a document to somebody you barely know and give them an indefinite, open-ended cause of action against you if it’s so strikes their fancy? And when you explain it to people that way, they’re like, Yeah, well, that kind of does makes sense. Why would I give people the right to sue me seven years from now or some ridiculousness? So I like sunset provisions almost inevitably are almost any kind of contract. I like sunset provisions. And I also just the second thing I like here with this subsection B is the execution of some sort of future agreement that’s going to supersede this agreement. I like that because we know that once we think a real contract, we can throw this thing away, not worry about it. So good bit of housekeeping again for all parties. So, you know, all in all, I’m definitely going to give. And oh, I love that the pace lawyers put this in a two column format, so when it’s printed up properly, it’s basically just a one pager. I love that, you know, one page on one side makes it easy for a non, you know, lawyer to read it, understand it. And so, you know, high marks for usability on this one. And, you know, I really have to to to give them, you know, probably let’s give an a on this one.
Mike Whelan [00:13:57] Yeah, that’s too nice. So let’s be mean. I want to jump over to the second document, which you’ve identified as the bad. This looks like a a generic agreement between an investor and a company. And it’s got a lot of the same headings. And you know it, it seems like the same sort of document, but I’m noticing a lot of highlights in here that makes me think maybe you don’t feel like it’s the same. Run me through this document. What are you seeing on here compared to the good that you’re saying? Red Flag? Pay attention to this.
Patrick O’Malley [00:14:29] Well, it starts pretty early. Basically, you got some company and they think they’re just the greatest thing since sliced bread, and so much so that they’re, you know, deigning to discuss with this investor, i.e. the guy with the money that they’re trying to get his money. You know, we’re going to deign to talk to you. And here you’re going to sign this thing. Well, you know, here’s my first pro tip. The best way to get shown the door when you’re at the VC’s office is to demand an NDA there. They’re just gonna laugh in your face and honestly, my way around, that just kind of a practice note. So when people ask me to sign and yet I just say, no, I don’t sign NDAs. Certainly just to have a chat with you. Just don’t tell me anything that you don’t want me to know, you know? Wow. Imagine that. Now we don’t have to create, you know, a whole piece of paperwork that one of us or both of us might sue each other over in the future. Just keep your big fat mouth shut. Tell me what? Tell me what I need to know in order to have this conversation and we’ll continue on. These guys don’t, obviously, you know, subscribe to my outlook on the world. So they do all sorts of silly stuff in here. You know, it’s kind of like, just have fun with it. You want to want to find some stupid stuff. I think there’s probably six stupid things in this particular NDA, but I think just the conceit that they’re asking somebody to sign anything before this person would be allowed to invest in them. It’s like, What do you think you are? You know, God’s gift to, you know, venture capitalists? I doubt it.
Mike Whelan [00:16:09] Well, I was curious in that in that definite, you know, the first remember in the previous document, the definition was everything’s confidential unless we say otherwise. And here’s some otherwise in in one, it’s got a pretty broad stroke there. It includes that any information independently obtained or prepared by the investor. So it sounds like they’re even saying if you investor doing your own research into us, you can’t talk about that either. What do you think of that section?
Patrick O’Malley [00:16:36] I had a good laugh. It was. It was humorous. I mean, you know, taken against the background that they shouldn’t even be asking this guy for an NDA. And then they’re saying, Oh, well, anything, basically anything that relates to us, even if you dig it out at your own time and expense is still protected by this agreement, I mean, I don’t even get the concept of how they, you know, how they conceive of that. You know, honestly, I just got one who wrote this silliness. But yeah, now that that’s rich. You know that when I saw that one, I was like, Oh, I’m using this one because this is literally the most ridiculous provision I’ve ever seen in any NDA.
Mike Whelan [00:17:15] Yeah. Well, again, sort of. You can tell who wrote this document looking down at for under the governmental orders and requests similar to the previous. They are saying, Look, we can’t stop courts from requiring things, but they say on their investor shall cooperate with the company in an effort to reasonably limit the nature and scope of any required disclosure of confidential information. Very different language in the sense that it’s now putting the onus on the other side to be the adult in the room. What do you think about that requirement?
Patrick O’Malley [00:17:46] Yeah. Again, you know, just the just continue to be presumptuous. Quite frankly, it’s like, first of all, what’s to, you know, what kind of cooperation do you need? Do you need me to go out and hire my attorney to try to quash that subpoena or that, you know, whatever it is, that court order? You know, it’s just it’s bonkers. You know, contrast that with the Pace University, where they said, Hey, you’re your act of obligation ends by giving us written notice so that we know what’s going on. These guys basically want you to become a party to some action. You know, at least could be argued that. So again, you know, this is a real clown. You know, whoever wrote this is just a clown. And anybody who signs it is dumber than a clown.
Mike Whelan [00:18:32] It’s probably like my brother or something wrote this, and I’m going to have to apologize to him later. Looking at six, it talks about the accuracy of the confidential information. And part of me is like, This feels like there’s a story here. And they included this. And part of me is like, What is this trying to do? Says, By executing this agreement, the company makes no representations or warranties to the accuracy or completeness of the confidential information provided to the investor. Like, what does that even doing? What does that section even doing?
Patrick O’Malley [00:18:59] Well, I’m going to say, you know, whoever wrote this has got a lot of chutzpah because basically they said, OK, everything we tell you is going to be confidential. Everything you figure out by yourself is going to be confidential. And oh, by the way, all that stuff that we told you, you can’t count on any of that being true because we’re expressly disclaiming. And you know, any we’re we’re just washing our hands of this thing. It’s just the silliness.
Mike Whelan [00:19:27] And here’s the investor saying, I’m just having coffee like I. I think I’m just having coffee with a person with an idea. And now I’ve got to sign this thing that says you’re totally full of nonsense, you know? And speaking of sort of the the scope creep of what NDAs do I know you wanted to talk about the ugly? This is a fascinating document because it is not what it says it is. Tell me about this third document and sort of how NDA scope creep and. To solve all social ills is now being turned into something totally different, what is the ugly?
Patrick O’Malley [00:20:05] Well, OK, yes, the ugly. As I was doing the research for this, a good solid maybe third of the NDAs that I was able to kind of just uncover in the public domain were real estate brokers. And I’ve on and off then a real estate broker for, let’s say, more than two decades without getting into specifics. And so, you know, I’m looking at going well, OK, realistically, at the end of the day, a broker is just an information conduit. He’s passing information from, you know, seller the buyer, in essence. And so why is this really HIPA an NDA again? You know, you kind of wonder what’s the point of even doing an NDA? Doesn’t the broker want to sell this property, you know, property? Of course I do. So why would they try to to limit, you know, the the the scope of the, you know, the audience that might want to buy it. But as I started digging into the real estate NDAs is there realized that there weren’t NDAs at all, basically, although they have non-disclosure written at the top, that’s just a tiny fraction of the heavy lifting and serious, you know, contractual relationships that are being created in this document so that although there is a non-disclosure in here somewhere, there’s a whole lot of extra stuff that definitely shouldn’t be here, period, because there are other specific forms issued by state real estate regulators that would cover a lot of these eventualities.
Mike Whelan [00:21:43] Yeah, there’s information in here about an escrow deposit like this is this is very different. And I guess getting to the big picture, what I’m seeing and correct me where this is wrong, but what I’m seeing is like the universal applicability of the holy and righteous scripture of NDA. You know, people like are stretching these things past the point of credulity. But I also feel like the nature of contract. The purpose of contract is to get to people who are not part of the same tribe, not part of the same family, have no reason to cooperate, to create enough trust. But those people feel safe cooperating. What is the public policy sort of view of an NDA that it can do sometimes that work of creating trust where trust is not, but sometimes it actually undermines the trust that it was meant to create? What do you think about the big picture of the NDA?
Patrick O’Malley [00:22:44] Yeah. Well, you know, pulling way, way, way back and viewing the force now, you know, I think there’s probably the the first distinction we need to make is although these three that we’ve been talking about are let’s call commercial NDAs or business NDAs where you know there is a business purpose. We do see NDAs used in other other ways. And I’m going to just call them for lack of a better word, personal NDAs. And you know, this got a lot of press, and as I was doing my research, I was reminded of it. A lot of press with the Harvey Weinstein and the Donald Trump NDAs where, you know, these NDAs were used by, you know, wealthy, sophisticated, well represented individuals in order to basically browbeat non sophisticated individuals. And in order to cover the tracks of the disreputable, wealthy individuals. And you know, that’s very broad, but you know, you get the point that why, you know, why should the courts or even the threat of courts be permitted to basically, in essence, you know, eliminate an individual’s First Amendment rights? Mm hmm. Although, you know, power to contract is obviously very, very, very important. There are plenty of contracts that we’re not going to enforce because, you know, they’re against public policy. You know, we’re not going to enforce a contract that envisions an illegal activity. And so, you know, I think that, you know, with these personal NDAs, you know, I think that absent, you know, showing of some clear, compelling, socially legitimate need, you know, I think a very strong argument can be made. And I’ve read a few law review articles this extent that, you know, good public policy should say, we’re not going to enforce a personal NDA. Kind of like how California disfavors non-compete employment clauses. You know, and I think a lot of people look at that. Yeah, that makes sense. We don’t want to basically, you know, chill people’s ability to go out and get another job. And, you know, I think as bad as a non-compete in an employment situation is so bad that the state of California said, we don’t we don’t want to countenance that. I think it’s much, much worse when you’re talking about a personal NDA where it’s not just about oh, we don’t want people compete with us. You know, it’s it’s far more nefarious than an employee non-compete. And so, yeah, you really have to to really think about that First Amendment issue. You know, for example, perhaps an NDA that protected the privacy of a child actor. Well, I think you could probably make, you know, a good public policy case for that. Well, you know, he’s still a minor. And so, you know, we don’t want them to be splashed all over the news. So, but you know, on the opposite of that, maybe he will. Definitely not. We definitely don’t want bad actors to use NDAs to cover up their bad acts, especially if we’re talking about, you know, something potentially criminal or tortious, sexual harassment lawsuit settlements. I think that right there, you know, when you’re asking that person to sign an NDA, you’re basically saying, Yeah, you know, we kind of want to go out and do it again. And so we don’t want to get caught. And so we want to chill your speech so that you won’t talk to anybody. And, you know, I think what a frame it that way. I think it’s pretty easy to agree that it is a misuse of the courts to allow bad actor to get away with a misdeed by hiding behind the power of the court. And you know, at the end of the day, the Aspen Times newspaper as back back back when Hunter S. Thompson was the editor or the contributor or whatever, they had a great motto. And the motto was, if you don’t want it printed, don’t do it. And I think that’s that pretty much covers the waterfront for personal NDAs. And, you know, I think lawyers, you know, not to be old fashioned, but lawyers as officers of the court. You know, I think you need to ask yourself, why is my client asking me to draft a personal NDA? You know that they’re putting upon this person of no means or this naive person? And you know, am I enabling, you know, am I using my law degree, my profession, my status, my status as an officer of the court to, you know, basically enable someone to commit bad future, bad acts? Well, you know, I think with Harvey Weinstein’s lawyers, you know, that’s a definite yes.
Mike Whelan [00:27:47] Yeah. And I don’t know that they, those lawyers were asking those questions. But I do. You know, to your point, there’s a power dynamics question here, right? Like, who’s got the power in this situation? Because a lot of that might define some of this public policy righteousness that you’re talking about. But in the case of a small, I have an idea. I want to start a company and I go to the big investor. I mean, the nature of that relationship is the person with the idea does not have the power in that situation. The person with the capital has that. Ideas are there are many and there’s not much capital, right? So that’s a different power dynamic. It sounds like you’re dis favoring even that small, you know, founder from trying to use an NDA. Are there other ways for that person to protect their, you know that to just not be taken advantage of by that disparate power structure?
Patrick O’Malley [00:28:46] Well, you know, in all honesty, it’s a practical matter. Now could there be, you know, you came up with some gambling system that never fails and it’s, you know, it’s the simplest thing in the world. And once you tell the other person how it works, then you know they can run off and take your idea and cut you out. But that’s just not the real world. You know, the real world is you come up with an idea. You know, I come up with three ideas before lunchtime, right? But you know, until somebody has actually done the legwork and executed and, you know, taken all those twists and turns that they need. Sure. You really don’t have much. And you know, and you know, the big, sophisticated company again, isn’t actually, you know, quite a clear policy that, you know, they don’t accept unsolicited ideas because, well, they don’t want to open themselves up to this. And so, you know, I think that, you know, for all those people with a great idea, you know, that’s great. But until you’ve got some real sales behind your great idea, you definitely don’t have anything worth protecting.
Mike Whelan [00:29:58] Yeah. And the majority of those ideas are iterative anyway. They’re not actually disruptive. We’ve got this weird cult of everything’s got to be disruptive, but the majority of human progress is iterative. So stop thinking you’ve got to break everything and everybody cares about the it. It’s because that’s actually very rare. Well, I think it’s interesting. I’m glad we finally on this show have gotten to talk about NDAs, especially from the perspective of why the freak are you guys all doing these things? You all hate them. I just find it fascinating as like a social experiment why you guys are all doing NDAs all the time. So I appreciate you sharing your perspective on that. For people who want to reach out to you and learn more about your work, teaching the MBA students and your experience with documents like this, what’s the best way for them to reach out to you, Patrick?
Patrick O’Malley [00:30:43] I’m an email kind of guy and that generation, so I don’t know if you’ve got a little ticker down at the bottom there. You can put my email address, but yeah, know, just put my my Gmail. And that’s where it all lands.
Mike Whelan [00:30:54] Eventually we can and we’ll have it there. We’ll also have it at like insider dot com slash resources, where the blog post will live, that we’ll talk about this issue of the NDAs. And if you want to come on on the show and beat up contracts like we do, just email us. We are at Community at Law Insider dot com. We’d love to have you. Thank you again, Patrick. You guys, we will see you next time.
Patrick O’Malley [00:31:19] Yeah, nice chat, Mike.