This post is for those executives and professionals who have left their organizations for one reason or another and are bursting with great ideas for business opportunities. We have all heard stories from people who lament that “my business idea was stolen from me” or “this person I trusted cut me out of the very deal that I conceived.” A well drafted non-circumvention document could have protected them from such shenanigans. A non-circumvention provision or agreement is designed to prevent a party from taking an opportunity or idea brought to this first party by a second party and then doing an end run around the second party to a third party. Typically, the second party expects to engage in or execute some kind of commercial transaction together with the first party in relation to some third party.
The non-circumvention can also be mutual so neither party can go around the other using the information obtained from one another. The third party could be a prospective seller, customer, client, vendor, supplier, investor, inventor, etc. As the opportunity or idea is usually considered proprietary and confidential, the non-circumvention agreement is often used in conjunction with a non-disclosure/confidentiality provision. Sometimes for good measure, companion non-competition, non-solicitation and no-grant-of-license provisions may be added.
What does a scenario for non-circumvention look like? One of my clients was negotiating with an investor to fund an acquisition of unique assets that had tremendous upside value and the client inked an agreement that prevented the investor from directly acquiring the assets from the seller without involvement of my client. A confidentiality provision was also included in the agreement.
What does a non-circumvention provision look like? Here are two examples:
- “Non-circumvention. The Receiving Party and its officers, employees and directors will not make any effort to circumvent terms of this Agreement in an attempt to gain the benefits or considerations granted to it under this Agreement by taking any of the following actions: The Receiving Party will not in any way use, sell, transfer, develop, market, finance, or invest in directly or indirectly, through its owners, shareholders, directors, advisors, employees, subsidiaries, agents or other parties under its direction or control, any product or service that contains or uses the Confidential Information.”
- “Non-circumvention. Receiving Party agrees that it shall not, either directly or through any third party, enter into any contract, joint venture, partnership, business arrangement or otherwise conduct any business whatsoever with any person regarding the Transaction without the written consent of Disclosing Party.”
The upshot in your business dealings is create trust but construct protection. A non-circumvention agreement is a building block of protection.
Disclaimer: This post does not constitute legal advice and does not establish an attorney-client relationship.
2 thoughts on “NON-CIRCUMVENTION AGREEMENTS”
Unfortunately, the misappropriation of business opportunities by unethical parties happens too often. In order to successfully do business, you must have a trust quotient. So the watchword is “trust, but protect.”
It appears “idea stealing” is rampant or at least not uncommon. Your article is a good reminder to button up one’s lips or have signed agreements before one reveals anything important.