Red Flags in NDAs: Don't Sign a Trap

NDAs are so common that people often sign without reading. But a bad NDA can trap you for years or expose you to significant liability. Here's what to watch for.

Definition Red Flags

1. Overly Broad "Confidential Information"

Watch for definitions like "any and all information disclosed" without limitations. This could cover publicly available information or things you already knew.

2. No Marking Requirements

If oral disclosures don't need to be confirmed in writing, how do you know what's confidential? You could accidentally breach without knowing.

3. Missing Standard Exclusions

Fair NDAs exclude:

• Information already publicly known
• Information you already possessed
• Information received from other sources
• Information independently developed

Duration Red Flags

4. Perpetual Obligations

While trade secrets deserve perpetual protection, general business information should have a time limit (typically 2-5 years).

5. Obligations That Survive Impossibly Long

Some NDAs try to bind you "forever" for all information. After 5-10 years, how are you supposed to remember what was confidential?

Scope Red Flags

6. Hidden Non-Compete Language

Some NDAs include restrictions on working with competitors disguised as confidentiality obligations. Read carefully.

7. Restrictions on "Using" Information

NDAs that restrict "use" as well as "disclosure" can prevent you from using general knowledge and skills you develop.

8. Applies to "Derivative" Information

This could mean anything you create based on inspiration from confidential information belongs to them—even ideas you develop independently.

Liability Red Flags

9. No Cap on Damages

Without a liability cap, an alleged breach could expose you to unlimited damages.

10. Injunctive Relief Without Notice

Can they get a court order against you without you having the chance to respond? Some NDAs waive your right to contest injunctions.

11. Prevailing Party Attorney's Fees (One-Sided)

If only you pay their fees if they win, but they don't pay yours if you win, that's unbalanced.

Practical Red Flags

12. Impossible Return/Destruction Requirements

Requirements to "return all copies" of digital information are impossible to fully comply with (emails, backups, etc.).

13. No Permitted Disclosures

You should be allowed to disclose to your lawyers, accountants, and in response to legal process.

What Fair NDAs Include

• Clear, limited definition of confidential information
• Marking requirements for written materials
• Confirmation requirements for oral disclosures
• Standard exclusions (public info, prior knowledge, etc.)
• Reasonable duration (2-5 years for most information)
• Permitted disclosures to advisors and per legal requirements
• Mutual obligations (if both parties share information)