NDA and Monopoly

NDA stands for non-disclosure agreement. Each year I sign at least a dozen of them with various perspective clients – they want to make sure that our company won “t disclose any confidential information that “s contained in their project documentation. This is perfectly understandable, and I usually sign such NDA “s after a quick read.

If an NDA comes from a startup that needs help in implementing some great idea, they simply want to make sure that the world won “t know about it sooner than it “s ready. No problems here. But I “m checking if NDA contains the red flags in the non-compete clause.

Sometimes, we do a contract training for large organizations through a third-party training companies, which want to make sure that if they introduced our firm to the client we won “t offer to them training services directly. This is also fine as long as it has the proper wording. Imagine if the client of this third-party trainer is a global bank with 200,000 employees. I “d never sign an NDA if it would prohibit me conducting direct training to the entire bank. Only if this particular bank “s department will need more training classes, I “ll agree to go through the third-party firm that introduced us to this department. Rephrasing of such a non-compete clause takes a little bit of time, but I don “t remember a case when we couldn “t reach an agreement here.

But recently, we were given an NDA that we simple can “t sign and the other party is using it to maintain its monopoly in the certain sector of the insurance business. Let me tell you the story.

About 18 months ago, we “ve created a startup with the goal to create software for automation of some business processes of the insurance agencies – these firms serve as a liaison between the independent agents that sell you insurance policies and large insurance carriers. To be more specific, we “ve automated the process of licensing and contracting of independent producers.

There was a large software firm that literally held the monopoly in this field. After 12 months of development we started selling our product, and our customers are extremely happy. These people were not spoiled by a variety of choices, which are typically available in large businesses. Today, we have a number of customers that are gladly using our services in the licensing and contracting area, but there is a need of integration of our piece of data with office automation functionality, that is offered by another monopolist firm, let “s call them XYZ.

Our clients asked us to integrate our licensing and contracting with their office automation, and we “ve contacted XYZ asking for the API to provide proper feed to/from their data. The XYZ firm responded that to get their API we “d need to sign their NDA. Unfortunately, this NDA had a clause that explicitly stated that if they “ll disclose the integration API our firm won “t be allowed to develop any competing software. Ever.

We “ve rejected signing the NDA with this clause, and XYZ is not willing to remove it. It “s an interesting technique to maintain the monopoly. Many insurance agencies use services of XYZ and would greatly benefit if our system would be integrated with them too. But XYZ would do anything to remain the sole service provider in this area. NDA to the rescue! Will it help them? I doubt it.


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