NDAs and Confidentiality Agreements for eCommerce

By Paul S. Rafelson, Founder, Rafelson Law PLLC

When do eCommerce businesses need an NDA?

• Before a sale process. A seller shares financial statements, marketplace reports, supplier terms and customer data with possible buyers. The NDA comes before the data. In a sale it travels with the letter of intent. See selling an eCommerce business.
• With suppliers, designers and developers who see a product before launch.
• With distributors, resellers and prospective business counterparties who will see commercial terms and supplier names.
• With investors and advisers.
• With employees and contractors, in the employment or services agreement. See employment agreements and non-competes.

What should I check in an NDA?

We review a counterparty’s form against these points and mark what to change.

How do trade-secret laws interact with an NDA?

Information that qualifies as a trade secret is protected under state law and the federal Defend Trade Secrets Act (18 U.S.C. § 1836), but only if the owner takes reasonable steps to keep it secret, which is where an NDA helps. If your contract with an employee, contractor or consultant covers trade secrets, include the immunity notice in 18 U.S.C. § 1833(b), or refer to a policy that contains it. Without it, you lose exemplary damages and attorney fees against that person under the Defend Trade Secrets Act. An NDA does not block a confidential report of a suspected legal violation to a government agency or to a lawyer. Federal law gives the person immunity for the disclosure, and a clause written to prevent it is unenforceable.

Why does the order of disclosure matter?

Most NDA damage in a sale happens before the deal is signed, when a seller hands a prospective buyer the supplier list and account reports to keep the process moving. The NDA is only as good as the record of what went out and to whom, and a buyer who walks away with the supplier name has what it came for. We set the disclosure sequence with the NDA and the letter of intent so the seller releases only what each stage requires. For the later stages, see buying or selling an online business.

Non-disclosure is only half of it

An NDA in a sale should restrict use as well as disclosure, so the buyer may use your information only to evaluate the deal. Without that, a buyer who walks away may be free to use your supplier list, landed costs, ad and keyword data, conversion metrics and customer data to compete, even if it never tells anyone. Add non-solicitation of employees, contractors and suppliers, return or destruction when talks end and a term and survival period that fit the information. Watch for a residuals clause, which lets the recipient use what its people remember and can quietly undo the non-use promise. Hold back the most sensitive data until the LOI or late diligence. See what a seller’s NDA should cover.

What if an NDA is broken?

Options include a demand letter, a request for return and certification of destruction, negotiation, and, where the facts support it, a court action for an injunction and damages. The first step is to preserve evidence of what was disclosed, to whom and when. See demand letters and litigation.

How do I get started?

Contact us. Tell us who you are sharing information with and what the information is, and we will tell you whether we can help.

Paul Rafelson is admitted in Florida and New Jersey. Katie Dariano is admitted in New York. For a matter governed by another state’s law, or in another state’s courts, we bring in local counsel or seek admission as the rules require.

Frequently asked questions

Related pages

Sources and notes

• 18 U.S.C. §§ 1833(b), 1836 (Defend Trade Secrets Act); state trade-secret statutes.