Why an NDA (or Any Small Contract) is Worth Your Time

A comment from Warren on my recent post Lessons Learned “Selling” My Micro-ISV (about my ASP.NET billing product, DotNetInvoice) brought up an important issue and a common misconception about NDAs:

Is an NDA even worth the time of writing it up?

Unless what you’re selling is worth the better part of a million USD, all you’re going hear from a lawyer is “it’s not worth taking it to court” (i.e. legal fees will eat everything before you get a bite)

A wise man once told me “We don’t write contracts for when we go to court, we write them to keep us out of court.”

In the case of small dollar contracts like an NDA for a $10,000 software product, a sales contract for a $5,000 website, or a $20,000 software development contract, the idea is not to win a court battle, but to accomplish two things:

  1. To communicate the terms of the agreement with crystal clarity. Most people want to do the right thing, and having a signed document is enough to keep the vast majority of people on the right side of the fence.
  2. In case of a breach, a contract is there to convince the other person (or their lawyer) that you will win a court battle. If you have someone dead to rights they will not go to court because you will be able to sue for damages plus your court costs. This is why there are so many out of court settlements; one of the parties thinks they are going to lose and decide to pay damages instead of going to court and losing and paying for the whole mess. Indeed, this is the true power of a contract.
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1 comment so far ↓

#1 Paul on 06.05.08 at 5:30 pm

Another thing I learned a long time ago and people don’t seem to grasp: a contract is not a guarantee of ANYTHING!! It’s simply an expression of terms of an agreement. I don’t care what the contract says, a decent lawyer can pretty much always find a way to get out of one.