WSJ article about "NDAs" (nondisclosure agreements) becoming a part of many aspects of life (in Silicon Valley).
November 3, 1999
In Silicon Valley, the Conversation
Comes with a Nondisclosure Form
By PETER WALDMAN
Staff Reporter of THE WALL STREET JOURNAL
SAN FRANCISCO -- There was romance in the resumes: She, a computer
consultant turned fashion model; he, an Apple Computer engineer turned
Silicon Valley entrepreneur. They were young, beautiful, wired for love.
But caution fell between them. During a yearlong courtship, Alfred Tom held
back, wary of revealing too much. Then it happened. After an afternoon with
friends, Mr. Tom took Angela Fu back to his car. There, on the front seat of
his 1994 Integra, he went for it.
"Naturally, I flinched a bit," Ms. Fu says. But in a stroke, it was done: a signed
nondisclosure agreement, or NDA, in the parlance of the Net set. Henceforth,
Ms. Fu would be sworn to silence about her boyfriend's trade secrets.
Cone of Silence
DNA, meet NDA, your twisted, alphabetical cousin in the world of baser
instincts. Long the province of lawyers, investment bankers and other
traffickers in corporate secrets, nondisclosure agreements have gone
mainstream.
Propelled by the Internet frenzy, an epidemic of secrecy pacts is spreading
through personal relationships, passed between lovers, friends, relatives,
roommates, even business partners.
The documents surface at dinner parties, weddings and sushi counters. One
entrepreneur NDAed his rabbi, then his rabbi's wife. Bill Gates NDAed the
carpenters working on his home. Quincy Smith, who ran corporate
development for Netscape before becoming a venture capitalist, fields NDAs
from his parents' friends, attached to business ideas.
'E-Commerce Personalization'
Ask young and breathless Net heads at a picnic or family barbecue what
they're working on, and you'll probably get back some blather like, "An
end-to-end solution for e-commerce personalization in the business-to-business
space."
Ask what that means, in plain English, and out comes the NDA, materializing
from breast pockets and knapsacks, PalmPilots, picnic baskets and glove
compartments. "It's one of the critical items for a date: car keys, credit cards,
condoms, and an NDA," says high-tech consultant Mark Macgillivray.
Most of the forms involve one or two pages of standard legalese, pledging the
signatory to silence concerning the bearer's "intellectual property." Judges have
ruled NDAs enforceable in all 50 states, lawyers say, but good luck bringing
tongue-waggers to court. Proving that somebody leaked proprietary
information is seldom worth the time and expense it takes, attorneys say. Still,
the truly paranoid -- and indiscreet -- collect hundreds of sworn secrecy
pledges before their businesses ever earn a dime.
Philip Lee, co-founder of SportBug.com -- "performance feedback over the
Internet using satellite tracking" -- usually makes people add their signatures,
petition-style, to a two-sentence NDA he keeps scribbled on the back of his
notebook. But caught unprepared at a restaurant recently, he dashed off a fresh
secrecy oath for some business-school buddies on scratch paper, with his
lawyer, who happened to be dining with him, adding "syllables and threatening
language over my shoulder," says Mr. Lee, 31 years old.
Mystical Incantation
"The NDA is the 21st-century equivalent of the medieval wax seal," says Kent
Walker, associate general counsel of Netscape. "It's a mystical incantation
people rely on, when in fact the only real security is to keep your mouth shut."
Mr. Tom tried that with Ms. Fu, until things heated up. At first, when his
girlfriend asked about his work, "he said he'd tell me eventually," Ms. Fu, 29,
recalls. Finally, after dating a year or so, he popped the form. "I didn't even
read it," she says. "I totally trusted him and I knew he trusted me."
Really? After Ms. Fu signed the NDA, "I still didn't tell her much," says Mr.
Tom, 30, who, suffice it to say, is developing a wireless-communications
product. "But at least she could feel part of the conversation."
Techies accept NDAs as part of the landscape. Some people from other walks
of life, however, still bridle at being asked to commit their loyalty to a legal
document to catch up with old friends.
Internet entrepreneur Eddie Lou -- "We're a first mover in a large,
business-to-business vertical space" -- had no problem getting his roommates,
friends and girlfriend to sign NDAs. He keeps extra forms in his car.
The Hang Up
But recently, two college buddies in the East, in separate phone calls, hung up
on him when he told them they'd have to sign NDAs before hearing about his
business.
When he called back one of them, a close fraternity brother who works in
finance in New York, it happened again. "He said, since he's not signing the
NDA, he's not in a position to talk to me, and hung up," says the 28-year-old
Mr. Lou. "Everybody here says 'Give me the NDA,' but people outside this area
don't understand."
In most gatherings of digerati, wielding NDAs confers an aura of value on a
start-up, even when, as in many cases, there isn't any. But spring one on the
wrong person, like a venture capitalist, "and it's like writing on your forehead,
'Look at me, I'm clueless! I don't know how the game works,' " says Silicon
Valley financier Guy Kawasaki.
That's because the bigwigs of the Internet crowd -- the professional investors,
consultants, securities analysts and top technology writers -- scoff at NDAs
and don't sign them on principle. They say they see too many similar ideas,
dozens or more a week, to have their tongues tied by any single one. Instead,
they preach the honor system to prospective entrepreneurs.
Yet horror stories abound of venture capitalists and others who said "trust us,"
only to use secrets gleaned from one business plan to help another.
In the Dark
"Not only are NDAs important, but I think start-ups should go a step further,"
says Internet tycoon Sabeer Bhatia, who doesn't even tell hires for his latest
company what they're working on until they show up for work. Mr. Bhatia,
31, credits secrecy with giving his first startup, Hotmail, a decisive six-month
lead on the competition, paving the way for its sale to Microsoft for a reported
$400 million in stock.
For Hotmail, Mr. Bhatia collected more than 400 NDAs in two years, from
employees, friends, roommates -- but no girlfriends. "A beautiful woman is a
beautiful woman," he says. "I just don't tell them about my business."
Mr. Macgillivray, the consultant, was chatting with friends at a crowded party
recently, when somebody piped up with his latest business idea for an obscure
computer-graphics process. "Two sentences into it," Mr. Macgillivray says,
"he pulled out the NDAs. Even the other Valley people looked at him and said,
'You've got to be nuts! We're at a party, pal.' He looked at us with disgust,
more convinced than ever we were all there to rip him off."
Jim Busis, co-founder of Wishbox.com -- "a universal gift-registry for Gen Y"
based in Pittsburgh -- brandished several NDAs at the end of a small dinner
party in his honor, taking several old friends by surprise.
Nothing Personal
"Here's a man to whom I confided many of the most intimate details of my
bizarre divorce, swearing secrecy from me?" says Liz Perle, editor at large of
publishing-house Harpers San Francisco and a friend of Mr. Busis since
college.
Mr. Busis, 43, explains NDAs are nothing personal, just a legal formality. He
also NDAed relatives and friends in town for his daughter's baby-naming
ceremony last spring, he says. The rabbi who officiated at the ritual, and the
rabbi's wife, signed in Mr. Busis's car on the way back to their hotel.
"At first I giggled and thought, 'Who does Jim think I'm going to tell about
this?' " recalls Rabbi Lennard Thal, vice president of the Union of American
Hebrew Congregations in New York. "Then I was sort of flattered that he
might actually have thought, in the circles I run, anyone would be interested."
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