[dctoedt]

All is not lost, and the start-up shouldn't despair, for a couple of reasons:

1. It's not unknown for acquisition deals to get put on the back burner for a while, even a year or two. That happened to my former company when it was acquired. (This history was publicly disclosed in my company's proxy filing with the SEC [1].)

2. The Company's lawyers are likely to tell them, forcefully, to be very careful about trying to redevelop the technology, precisely because of the NDA.

Suppose that The Company didn't use completely different people (a "clean room" approach) to redevelop the technology. In that case, a jury might not believe they really did it independently.

In a somewhat-similar situation in the mid-1990s, Rockwell International got tagged by a jury for almost $58 million for breach of an NDA with a small start-up company concerning circuitry for improving data transmission rates over analog cell phones. (Disclosure: I was co-counsel for Rockwell at the trial.) [1]

(To be sure, The Company's engineers and executives might well convince themselves that they really did redevelop the technology independently, without using the start-up's confidential information. That could make it difficult to settle the case: The important decision makers might sincerely believe The Company didn't do anything wrong.)

[1] http://google.brand.edgar-online.com/displayfilinginfo.aspx?...

[2] Celeritas v. Rockwell, http://www.ll.georgetown.edu/federal/judicial/fed/opinions/9...

[edited]

[ww520]

Yes. The startup might not have the fund to enforce NDA now but wait until the Company has developed a similar product. There will be lawyers willing to do Pro Bono on collecting the damage.

[hga]

Bingo. A major use of these sorts of agreements is "If you cheat us AND make a bundle 'we'll be back'".

Or at least that threat WRT employees unwise enough to have signed non-competes (Boston and D.C. areas, obviously not California) has killed several situations I've been in where a company failed and dog in the manger types, the very ones responsible for the failure, used such threats that everyone else gave up and the concept and/or technology died a hard death.

[jpdoctor]

> The Company might well become very cautious about trying to redevelop the technology, precisely because of the NDA.

I seriously doubt it.

> In a somewhat-similar situation in the mid-1990s, Rockwell International got tagged by a jury for almost $58 million for breach of an NDA concerning circuitry for improving data transmission rates over analog cell phones.

What fraction of revenue was that? For a semi firm, that sounds like small-cost-of-doing-business when compared to cell-phone revenues.

[kappaknight]

NDA is not the same as non-compete, or am I wrong on this?

[dctoedt]

> NDA is not the same as non-compete, or am I wrong on this?

You're right, they're not the same.

A nondisclosure agreement ("NDA") typically includes restrictions on both disclosure and use of the confidential information in question. A noncompetition covenant is sometimes used as a means of enforcing an agreement's use restrictions. It says, in essence, "to 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 are commonly used to help two (or more) parties decide whether they want to do business with each other. As a result, NDAs per se hardly ever contain noncompetition provisions --- it's usually too soon in the parties' relationship for one of them to be making that kind of commitment.

Putting a noncompete in an NDA would be tantamount to a man and a woman agreeing to get a coffee to get to know each other --- and the woman says, oh by the way, I need you to agree that, for the next two years, you won't talk to any other women. Imagine the guy's reaction ....

A slightly different situation is when one company (the acquirer) is talking to another (the target) about a potential buy-out. When things start to get serious, the parties likely will sign a no-shop agreement that says, in essence, the target won't go looking for other potential acquirers. (The target's board of directors may have a fiduciary responsibility to its shareholders to consider other unsolicited offers.)