What to Know About Non-Disclosure Agreements

You’ve made the big decision to start your own brand. You’ve selected a factory to manufacture your products and are talking with a junior designer or development consultant to help you with a prototype and sample. You are so excited to get started, but wonder: Is it safe to share your ideas with others? You’ve heard the fashion industry has a reputation for knock-offs.

Non-Disclosure Agreements (NDAs), also known as Confidentiality Agreements, are a handy legal tool for entrepreneurs to have in their back pocket to help deal with this situation – but they are also not always feasible. Here are the nuts and bolts.

What is an NDA?

NDAs are legal contracts that obligate a party to keep the information he or she receives confidential. When you are introducing your new brand or design ideas to a third party, you may consider using one so you can have a written promise from the other party that they will not share or use the information you give them without your permission.

What information do NDAs protect?

Pretty much anything related to your brand can count as “information.” For example, NDAs can potentially protect patterns, design ideas, branding ideas, marketing plans, financial information, customer lists, business plans, and other trade secrets.

While a signed NDA can be a tool to protect your ideas, you should know that there is very limited protection for fashion designs themselves in the United States – unlike Europe, where the cut and sew of garment designs are legally protectable, for example.

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Although a signed NDA won’t stop the disclosure or theft of your design ideas entirely, it can give you some legal options if either does happen and you suffer a loss. There are other legal tools you can use in conjunction with NDAs to protect your brand’s intellectual property. Talk to your lawyer about the available tools.

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Where do you get an NDA?

We recognize that resources are scarce for startups and legal fees can be expensive.  But remember that an NDA is a legal contract, and so it is advisable to work with a licensed attorney on it. Explain what types of information you want to protect, types of people you want to share information with, and particulars of your business. This will help the attorney tailor the NDA to suit your business’ needs.

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You can obtain a “form” NDA, which is a base contract that can be revised and reused for most business collaborations. So think of the money you spend for an NDA as an initial investment. And while attorneys usually charge hourly rates for their time, many are transitioning to a flat fee for basic forms. Don’t hesitate to ask for a flat fee if it’s easier on your budget.

What if you encounter pushback?

The fashion industry (like many others) has historically ridden on personal relationships and handshake agreements. So it may feel awkward to approach a large retailer or a potential buyer with a legal contract because it creates too much formality.

Also, many factories won’t sign an NDA because they are too busy fulfilling orders to get bogged down with paperwork. Factories work with many different brands who may be manufacturing similar items, so as a practical matter, they may not want to take on potential liability.

Even if a collaborator pushes back on signing an NDA, that doesn’t necessarily mean you shouldn’t do business with them. As an entrepreneur, you will constantly be assessing risks against rewards, and to do that comfortably, you need to gather information.

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How can you validate trust without an NDA?

Ask about their business practices to address your concerns. How long have they been around? Do they have expertise in the garment you need? What other brands do they work with? Who has access to emails and documents?  Do they share information, samples or patterns with other brands?

Use your gut, read Maker’s Row reviews, ask other designers about their experiences, get references, conduct Internet searches, and search Facebook and Yelp pages for comments and recommendations. You’d be surprised how much information you can find online! The key is to make an informed decision.

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As an entrepreneur, you will be taking risks every day. You will learn many lessons just by getting out there and doing. Do your research, build your network and know what you are getting into. That is the best way to prepare.

How Do You Enforce An NDA?

If you think a collaborator is violating the terms of your NDA, investigate first. In any relationship business, it’s wise to start with a conversation, one that you have a record of. Give them a chance to explain. You can email the signed NDA – remind the collaborator of their obligations to keep shared information confidential and provide them opportunity to rectify the situation by stopping their behavior.

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As a last resort, consult your original attorney. If you are unable to resolve the issue amongst yourselves, going to court is an option. Hopefully it never escalates to that point. You want to be building long-term partnerships, not getting tangled in disputes.

THE FASHION LAW STUDIO PROVIDES LEGAL EDUCATION SUBJECT MATTER ONLY. THIS ARTICLE AND ITS CONTENTS ARE FOR INFORMATIONAL PURPOSES ONLY AND DO NOT CONSTITUTE LEGAL ADVICE. THE FASHION LAW STUDIO IS NOT A LAW FIRM OR A SUBSTITUTE FOR AN ATTORNEY OR LAW FIRM.  NO ATTORNEY-CLIENT RELATIONSHIP IS CREATED HEREIN. THIS COMMUNICATION IS NOT “ATTORNEY ADVERTISING” OR A “SOLICITATION” UNDER THE NEW YORK AND CALIFORNIA RULES OF PROFESSIONAL RESPONSIBILITY GOVERNING ATTORNEY CONDUCT.

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