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How often do breaches of NDA's occur and what is a reasonable punishment for a breach?

Recently, I was asked by a start-up with promise to sign an NDA that would have punished me with a fine of $200,000 for each breach. I declined although I never had problems with keeping secrets in the past. Any opinions? Thank you!

6 Replies

Tim Kilroy
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Tim Kilroy Entrepreneur • Advisor
Analytics - LTV - Boosting Profits - Digital Marketing
That is a ridiculous NDA. don't sign it. The $200K probably isn't enforceable, but it does not represent the potential partner well
Ryan Rigterink
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Ryan Rigterink Entrepreneur
Midwest Manager at Hematogenix Laboratory
IMHO They are a like a sharp knife. When accompanied by the right skills, restraint, and timing they can be used as a deterrent for protecting information and IP and can also build intrigue and further dialogue. Without the right business acumen they create barriers,undermine trust, and kill any hope ofcollaboration.
Bob Binder
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Bob Binder Entrepreneur
Member of Technical Staff at Software Engineering Institute | Carnegie Mellon University

I'd walk away. This is insulting, toxic, and highly questionable, unless you've recently made an appearance on the FBI's 10 most wanted list. If they can justify this very unusual ask and you still like the deal, I think you should require compensation that offsets your risk.I've been required to have bonding insurance when I worked for financial institutions, which I obtained with a rider to my commercial liability insurance, at a reasonable extra cost. I'd offer an insurance bond as an alternative and insist they pay for the extra expense. You could also have them partially redact sensitive information before it is given to you.

Scott Brooks
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Scott Brooks Entrepreneur
CoFounder at TimeHero
This one contains the spirit of what an NDA is supposed to do.

http://friendda.org
Derek Steve Bereit
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Derek Steve Bereit Entrepreneur • Advisor
Startup founder || python neophyte, NY attorney, veteran || general counsel Nimbo || co-founder Symptomly | Techstars
I have seen four-score and seven NDAs --from startups to Fortune 50-- never seen liquidated damages.

It is clever, they are attempting to put a pre-determined estimated value on the damages for breach of the agreement.

I would never sign that.

However, I have found a lot of startups don't even know what is in their agreement--I just advise a provision is unacceptable, and they often say "I didn't even know that was in there". So I wouldn't just walk away from a deal due to a legal provision.

Just me. Not legal advice.
Rob Gropper
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Rob Gropper Entrepreneur
Director at PetHero, SPC - Member at Eastside Incubator - Principal at Tuxedo Technologies Group
I've seen lots of NDAs and i've never seen a clause like that before. It is common for the agreement to include a provision for an injunction (to stop any continued breach without months/years of legal wrangling first) and an understanding that a breach is damaging (to avoid more months of legal BS before they can claim you have damaged them), but i've never seen an NDA that quantified the damages upfront before a breach is even alleged. You are always free to strike any wording you don't agree with and see if/how they respond. This doc could have been designed assuming it would be signed by a company representative rather than an individual and no individual has brought it to their attention. IMO (admittedly often not so humble) this is the result of an attorney laking the understanding that there needs to be a balance between protecting their client's interests and actually getting business done. I'd strike the clause, initial and date the change and see what happens. In case there are any attorneys on this thread i feel compelled to state that i'm not offering legal advice... just common sense.
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