Nondisclosure Agreements: Protect Your Interest

By Sarbin, Hershel | Folio: the Magazine for Magazine Management, May 1988 | Go to article overview

Nondisclosure Agreements: Protect Your Interest


Sarbin, Hershel, Folio: the Magazine for Magazine Management


Nondisclosure agreements: Protect your interests

A few years ago, the entrepreneurial publisher of a successful small magazine decided that his publication could become a giant operation, given an infusion of outside resources. He therefore approached a large publishing company that had the resources to expand his publication. During months of negotiation, the large company learned everything about the small entrepreneur's business it could ever want to know. No nondisclosure confidentiality agreement in which the large company promised not to reveal or otherwise use information given to it by the small publisher was signed. After shaking hands on a deal, the large company suddenly changed its mind.

Then the inevitable happened. The large company adopted the entrepreneur's idea and put out a successful competing publication in regions that had been part of the expansion plan shown to it by the entrepreneur.

The small publisher had no legal recourse--there was nothing marked confidential, no letter or contract to point to. This true story is not even the worst case scenario. After all, the large company could have competed anywhere with impunity.

If you are a small publisher considering selling one or more magazines or looking for an investor to help you expand your operations, you could be running a fool's errand unless you have the other party agree to sign a nondisclosure agreement at an appropriate point in the proceedings. In this type of situation, small publishers have to do what large publishing firms have always done to protect themselves. And yet, in my experience with small publishers, seven out of 10 fail to appreciate the need for the legal protection of a nondisclosure agreement.

All that being said, it is also true that nondisclosure agreements are not always appropriate. A small publisher may be wary of putting off a potential investor by waving a nondisclosure letter in his face. Clearly, I do not suggest that small publishers should do something that will prevent even the examination of an idea by another company. If you desperately need to raise $500,000 or be out of business in 90 days, you may be in no position to insist on a nondisclosure agreement.

In deciding whether to require a nondisclosure letter, you have to resort to a "sliding scale of necessity." On one end of the scale is an ideal situation where you're in a position of strength and have all the time in the world. But that's rarely the case. On the other end of the scale, you may be facing someone who is fabulously interested. But you have just one crack at him--and don't want to ruin the opportunity with a letter. The exigency of the moment may call for drastic action. Somewhere off the scale are the many companies that fund new ventures, but will not sign confidentiality letters for new magazine ideas. They see hundreds of ideas, so few truly new.

In general, it's better to release information in stages. You usually don't have to show all your cards at once. You can give some nonconfidential data and then, if the person comes back for another bite, say, "All right, but if you want more information, please sign this letter." Nonconfidential information could include copies of your magazine, media kits, direct mail pieces, a history of your company, or a general business plan telling where you want to go with the company. I seldom hesitate to send someone this kind of material. Confidential information, on the other hand, could include circulation data, lists of advertisers, information about insertion orders or advertising practices, a five-year plan, or any other financial information.

See a lawyer first

Given the complexities of this area, I strongly encourage you to seek the aid of an attorney in preparing a confidentiality letter. Most general corporate counsel can help you, although it is probably best to use a lawyer who understands the publishing business. …

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