A commenter on Hacker News asked for confirmation that a nondisclosure agreement (“NDA”) and a non-competition covenant (“non-compete”) are not the same thing. That’s correct:
- An NDA, which parties sign to protect confidential information, typically includes restrictions on both disclosure and use of the confidential information.
- A non-compete is sometimes used as a means of enforcing an agreement’s restrictions on use of confidential information.
The non-compete says, in essence, “to help make sure you don’t use our confidential information without our permission, you agree not to compete with us at all in the following geographic area for the following time period ….”
NDAs per se hardly ever contain non-competition provisions. NDAs are commonly used to help two (or more) parties decide whether they want to do business with each other. Usually, it’s far too soon in the parties’ relationship for either of them to be making that kind of commitment.
Putting a non-compete in an NDA would be tantamount to a man and a woman being introduced to one another; wanting to get to know each other better; and agreeing that they’ll get a coffee later — and then the man says, oh by the way, I need for you to agree that, for the next 12 months, you won’t go out with any man except me. Imagine the woman’s reaction ….
D.C.: Another restrictive covenant–the no-hire provision–can be important when a company is entering into an NDA with a party that might try to poach its talent. While the non-compete is usually over-reaching in an NDA, I wouldn’t hesitate to ask for a no-hire provision (or, alternatively, its cousin the non-solicitation clause).
Good point, Brian. A no-hire or no-solicit clause in a one-to-one NDA would be less likely to run into antitrust troubles than the multi-company agreement that attracted unwanted attention from the Justice Department, as discussed in this blog post.