The $27 million SaaS NDA
There are some great lessons here regarding SaaS confidentiality agreements (aka NDAs).
Background: A startup SaaS company disclosed its confidential consumer electronic buyback program information when trying to win the business from a ‘prospective customer’ = Best Buy. Best Buy gave all the right buying signals and Techforward went even further and disclosed its trade secrets (internal workings of its proprietary analytical model) to Best Buy. However, at the last minute it appears that Best Buy decided not to buy the SaaS service from Techforward, and instead took Techforward’s information and created a nearly identical internal solution (in violation of the NDA). Techforward sued, and a few years later a court awarded Techforward $27 million as compensation for their loss (including $5 million for Best Buy doing it intentionally).
Here are 3 takeaways, as something good has got to come from this case.
1) Always Use an NDA When Disclosing Confidential Information to Third Parties.
- This helps to prevent a misuse of the information, as most customers will abide by the NDA.
- However, if your customer wrongfully uses your confidential information, then the NDA will really help when you try to get them to stop using it or to seek compensation for your loss.
Sorry to tell you, but sometimes customers don’t want to pay for your SaaS service, and they may take your information and create their own solution (that is pretty much what happened in this case).
2) Disclose Confidential/Trade Secret Information in ‘Layers.’
- Disclose only