NDA for App Development Outsourcing: Does it Really Work?
“I want to protect my app idea. How can I do this?"
The easiest way to achieve the goal in question is to sign the NDA for app development. But how far-sighted is such a step, though? Is the game worth the candle?
We answer these and many other questions in our new article. Read it if you want to understand what a non-disclosure agreement is and how to conclude one. We'll help you figure out how to avoid unnecessary conflicts and stop worrying about information leaks.
Okay, let's get to the point then: how to protect your app idea? Where to begin?
What is NDA?
The NDA is a legal document that restricts the dissemination of information, which, under the terms of the agreement, can only be used by people who have signed it. The standard NDA describes in detail which data is confidential and defines the responsibility for its disclosure.
The need to protect confidential information is especially important when developing digital products because in this case, data leakage can cause serious financial risks.
The main tasks of the NDA:
making sure there is no confidential data leakage;
stopping the disclosure of crucial information when it has been revealed;
prosecution if the disclosure not only happened but also damaged the company.
What is confidential information?
Non-disclosure agreements cover any type of information, including:
customer or supplier databases;
any business strategies;
personal data of employees;
unique product ideas.
Pros and cons of the app development non-disclosure agreement
Pros. The main advantage is, of course, the ability to protect confidential information and thereby increase the chances of your project’s success.
Cons. Working in secrecy isn’t easy, which is why contractors often raise prices for their services if they have to sign an NDA.
When Should You Sign an NDA?
Let's list the main cases when you have to enter into an NDA (non-disclosure agreement):
you’re engaged in any type of research and need to hide the results obtained until you’re sure of their reliability;
you have a startup to present to investors with a view to obtaining financing;
you’re interested in the development of innovative products (including new app ideas);
you're working on a project that deals with handling client data (which you want to keep secret for the time being).
And now about the main thing: do YOU personally need to sign an NDA?
The answer is yes if you have an interesting digital project idea, which you want to bring to life. You're confident that your product will be popular in the market, but only if it happens to be one of the first of its kind. How to protect your app idea in such a case? Of course, with the help of the NDA, which obliges developers not to disclose information to your competitors.
Do you need an NDA for StartUp in IT?
First of all, an NDA is very useful for certain aspects of how a technology startup works. This is a legally binding agreement that protects the intellectual property of the entrepreneur in terms of preventing unwanted disclosure of the startup idea. Therefore, it is necessary to sign an NDA for the purpose with each employee or contractor of a startup in order to ensure the legal security of the entrepreneur in the event of litigation.
Any NDA must specify the nature of the confidential information to be disclosed. This must, however, be done without actually disclosing the information, so sensitive information is usually described in categories. For example, a contract might include PHP code, a database, and proprietary development techniques. It is important for the Receiving Party that the definitions are not generic but clearly describe what you will actually receive. Something like "all relevant business information" is too broad a definition and should be avoided.
In the field of IT startups, information security is in the first place, so there is a need to conclude a detailed confidentiality agreement. The parties are, as a rule, the customer and the contractor or two business partners who agree not to disclose confidential information or trade secrets that became known in the course of their cooperation. Thus, guarantees are established against unfair competition on the part of the counterparty, which can potentially use the information received for its own commercial purposes.
A separate contract or a clause in the general contract? An NDA can exist not only as a separate document but also as part of a general agreement governing relations between the parties (for example, a software development agreement).
What types of information should be included in an NDA? The NDA must define the following:
- The information is considered confidential (program codes, databases, technologies, design, business ideas, the content of agreements, clients, partners, etc.). The list must be complete, specific, and unambiguous;
- ways of transferring confidential information;
- what is the unlawful disclosure of confidential information, that is, the possible ways of its distribution (in writing, orally, by sending it to an email address, uploading it to the cloud, etc.);
- permissible disclosures;
- data protection measures to be taken (store information in a certain way, do not use certain resources)
- the validity period of the NDA (usually 2, 5, or 10 years, and the obligation not to disclose confidential information exists both during the validity of the main contract and for some time after its expiration);
- responsibility for disclosure (as a rule, a fine, reimbursement of the cost of lost information, lost profits). In order to avoid the need to prove the amount of damages, sanctions for disclosure should be provided for in a fixed amount.
Are you hiring an accountant who will be aware of your sources of income, expected profits, and growth rates? The conclusion of the NDA will ensure that your competitors cannot accurately assess your potential and prevent you from achieving success.
What to Consider to Properly Protect My App Idea?
There are two key points to keep in mind.
You have an app or website idea, and you're sure that it's unique ... but you may well be wrong. After all, there is nothing new under the sun. Therefore, there is a risk that the development team will undertake, in addition to your project, another one similar to yours in essence. As a result, your product will appear on the market at the same time as the competitive one. If you want to avoid such situations, create a clear business plan in advance.
Of course, reputable IT companies never undertake similar projects. But these things need to be discussed anyway.
The failure to fully understand the obligation
Sometimes contractors fail to protect the mobile app development idea without malicious intent, it can happen by accident or through oversight.
And we're ready to give a striking example of this kind of omission. Moreover, that's the Apple company itself!
The bottom line is that a few years ago Apple fired its employee (Ken Bauer), whose daughter posted a video on YouTube showing several new features of the iPhone X. That'd be okay, but iPhone X was still in the testing process.
Ken Bauer removed the video at Apple’s request but it was too late: it managed to go viral and had already been watched by a huge number of users.
The conclusion is simple: when drafting an app development non-disclosure agreement, examine various options for information leakage. Let's say an IT company could publish a post bragging about starting a new project or place your logo in the Our Clients section. You never know!
We suppose we should explain to you what you should include in your NDA to avoid any misunderstandings.
What to Include in NDA to Protect Confidential Information?
#1. Confidential information to be protected
As the saying goes, "This is it!", the main clause of your agreement. To be precise, first of all, you should determine what exactly relates to confidential data. What are you going to protect?
"I want to protect my app idea!" - you might say. However, the app idea is a rather vague concept, lacking in specifics. You need to give real and concrete examples of confidential information (for example, all data stored in the company's cloud storage).
You also have to know the difference between confidential and commercial information. Many people think they are the same thing, which is wrong.
#2. Definition of non-confidential data
Sometimes it's useful to supplement your contract with a clause clarifying which data isn't confidential. This will allow the parties concerned to better understand what kind of information should be kept secret.
Non-confidential information usually contains material, which is already publicly available or identified by the contractor from third party sources.
#3. Parties to the non-disclosure agreement
It's time to discuss the parties to your contract, namely:
the client providing the information (i.e. you and your company);
the contractor receiving the confidential data (say, a development agency);
third parties, such as outsourcer employees, lawyers, etc.
#4. NDA validity period
Okay, you've contracted to protect the mobile app development idea. But how long should the experts you hired keep the data secret? A year, two years, a decade?
Of course, you must discuss this clause when drafting your NDA.
#5. Acceptable use of the data provided
If the data you've provided to the order executor is so valuable, why share it in the first place? Maybe you'd better hide your information, what do you think?
“But I want to have my application developed, so I should hire someone to do the job!" - you're likely to answer us.
And you actually have a point! That's why you must validate your app idea.
And let us give you one piece of advice: describe in detail how your contractors are entitled to use the information received. If necessary, list all the tasks assigned to them.
#6. Conditions for the information transfer
In some cases, when drafting the NDA for app development, it's useful to indicate how you plan to communicate data to your contractor.
By the way, as an option, you can designate all the information sent in the manner specified in the contract as confidential.
#7. Definition of the information disclosure concept
What do you consider to be illegal disclosure of confidential information? Define this concept and label it in your agreement.
Usually, it's about the sale of data, the intentional or accidental transfer of information to third parties, etc.
#8. Cases when information disclosure is allowed
"I want to protect my app idea, and therefore you have no right to disclose information to anyone!" - that's your intention when signing the NDA, isn't it? However, there are situations when the order performer has no other choice but to give out the information received. And he (or she) can't be blamed!
Usually, the case in hand is communication with government agencies, courts, and other similar organizations. As you understand, these authorities can force anyone to disclose even the most confidential data.
To avoid all sorts of misunderstandings in the future, we advise you to initially indicate when the disclosure of the information isn’t a violation of the contract.
#9. Returning information
When the contractor has completed your order, he must, in one way or another, return all the information received (as far as possible, given the popularity of cloud storage).
So the penultimate clause of your agreement should discuss this very issue.
#10. Possible Sanctions
Let's say your contractors failed to protect confidential information. What to do? What should they expect from you, what sanctions?
You may have your own ideas of punishment, surely, but most often one resorts to paying damages or imposing fines.
And remember that referencing the country's legislation isn’t enough, for it doesn't work properly in most cases. Therefore, the absence of a Sanction clause makes the contract (which is NDA for app development) meaningless.
When to Refrain From a Non-Disclosure Agreement?
Signing an NDA isn't always the best way to act. On the contrary, sometimes the decision to conclude such an agreement can lead to large financial losses.
Most often, the NDA doesn't work if your digital product is too original and uncommon. Oddly enough, but uniqueness is far from being a guarantee of your project’s success.
The whole picture is rather simple. Let's say you've decided to create a new application, and you're 100% sure it has no analogs on the market yet. And, of course, you're afraid of competition, you want to be the first to release such an app. That's why you'd like to protect the mobile app development idea by signing the NDA.
And why not? It makes total sense, right?
Unfortunately no, it doesn't. In some cases, the competition will do less harm than launching an a priori losing product. After all, you may think your mobile service is cool and likely to attract a lot of users, but what if you're wrong? Any new app idea needs to be tested thoroughly. You should first conduct a detailed analysis of the target audience, interview the focus group, and take other similar steps.
Naturally, all of the above activities are impossible in a state of complete secrecy. So it's better to postpone the signing of the NDA.
How to Protect Your App Idea and Avoid Basic Mistakes?
Sometimes the conclusion of the NDA for app development doesn't bring the expected results. And usually, there are quite understandable reasons to explain such a sad outcome, including:
Use of template NDA samples. You can find many examples of standard NDAs on the Internet, but they usually contain a minimum of information and therefore don't meet each company's needs. Your contract requires a personalized approach.
Wrong document size. An agreement, which is too short or, on the contrary, too long, also risks being a failure.
Inopportunity. In addition, it's important to sign a contract at the right moment, which is a task of increased complexity:
signing a non-disclosure agreement too early means depriving yourself of the opportunity to test your idea first;
on the other hand, it’s absurd to talk about the protection of information if most of it has already become publicly available.
The legislation is unspecified. If agreements are based on vague phrases such as "disputes are settled by the established judicial procedure," then in the event of any problems with the contractor, you run the risk of facing a host of problems. Believe us, the choice of legislation is quite a challenge, which should be addressed in advance, at the stage of signing the contract.
Let's summarize the above briefly:
Be sure to write down what you consider confidential information.
Don't forget to explain what responsibility is provided for the data disclosure. And describe what you mean by disclosure itself.
Make sure the company you’re hiring introduces a secrecy order.
Any punishment you plan to impose on violators of the agreement must be based on the applicable laws of the country