Do loose lips sink chips?

Nondisclosure agreements are a way of life in Silicon Valley -- where everyone calls them "meaningless" but signs them anyway.

By Janelle Brown

Jun 30, 1998 | Andrew is my quintessential Web friend: He knows everybody, reads everything, works 14-hour days and is determined to make his million off the Internet. (He probably will.) I recently ran into him at a South Park microbrew-and-brie affair. I had heard that he had left his job as an "evangelist" at NetObjects and was in the process of financing his own start-up.

I asked him what his new company was going to do. "E-commerce," he replied.

"Yes, but what kind of e-commerce?" I asked.

"I can't tell you," he said carefully, "unless you come down to my office and sign an NDA."

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The technology industry doesn't just build chips and Web sites; it manufactures secrets. And the magic piece of paper that transforms ordinary information into hot secrets is the nondisclosure agreement (or NDA).

Silicon Valley's favorite legal document tries to erect fortresses around ideas, information and data. Here, NDAs are ubiquitous: You sign an NDA for your employer when you take a new job. You sign an NDA when you meet with a potential partner or investor or client. The visitor badge you wear when visiting most high-tech companies has a catch-all NDA on the back. And, as I learned, you may even have to sign an NDA just to learn what your friend does for a living.

Yet people in Silicon Valley haven't stopped talking to each other. And though NDAs are proliferating at every turn, their real purpose is often a cipher. Everyone, it seems, has something they want to protect; but few people believe that NDAs are really taken seriously. Instead they are seen, as my friend Andrew puts it, as a "necessary evil."

"The thing that I'm most worried about is our idea for our company being put in the hands of competitors. All that takes is word of mouth," Andrew tells me. "Of course if I hand somebody a digital document it's much worse -- and I don't do that now, I number all my documents and try to print them on paper you can't photocopy; I give them to investors and make them read while I'm there watching them. But paranoia aside, ideas travel much faster than a piece of paper, and if I just give someone good ideas, they then could say, 'Hmmm, those are good ideas. My brother works at Microsoft and I should tell him ...' And then I'm history. Buh-bye."

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The NDA is not a modern invention. Intellectual property expert Pamela Samuelson, a law professor at the University of California at Berkeley, tracks them back at least as far as the Middle Ages -- when Venetian glass guilds would kill glassblowers who took their secrets off the city islands. Still, though NDAs are used today in many industries, only in the technology business have they become a part of everyday life for such a broad population.

Says Rob Merges, co-director of the Center for Law and Technology at UC-Berkeley, "I think that more people are carrying them around, and there's probably more pieces of paper with the title NDA on them in drawers all over the Valley ... and so in that very limited sense, yes, use is on the rise."

Yet while the piles of paper mount ever higher, he adds, there has been no increase in the number of lawsuits. Perhaps that means that everyone is honoring the agreements they sign; or perhaps it means that no one is actually enforcing them.

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