By Eric Goldman

Nondisclosure agreements (NDAs) are often called the "Silicon Valley Handshake." In some circles, any conversation beyond pleasantries requires an NDA. However, NDAs have underappreciated and potentially strategic consequences. How did such an important agreement become so ubiquitous, and is ubiquity a good thing?

NDAs' Benefits
NDAs facilitate the disclosure of trade secrets. A trade secret is information that is valuable and secret. Information disclosed to third parties remains a trade secret if an NDA requires the recipient not to disclose it. Information disclosed without an NDA usually loses its trade secret status.
Thus, using an NDA permits the discloser to sue the recipient for trade secret misappropriation if the recipient breaches the NDA. Further, because the information remains a trade secret, the discloser can sue third parties who misappropriate the information. Additionally, if the disclosed information is also patentable, an NDA may help defer the deadline to file a patent application.
With these important benefits deriving from using NDAs, it's easy to see how NDAs have become de rigueur in Internet circles. However, further analysis shows some downsides.

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