The $10 Million NDA

Welcome to Counsel Club Ghost Stories, where I share legal horror stories that still haunt me. This one is especially harrowing as it involves a $10 million NDA violation and no contract. Reader beware.

Welcome to Counsel Club Ghost Stories, where I share legal horror stories that still haunt me.

A decade ago, there was an up and coming graphic artist in LA, with a growing Instagram following. This was back in the day when everyone was making a mobile app. A celebrity’s office DM’ed the artist and asked her to design an app for the celebrity’s product line. The artist put together a scope of work and everyone signed it. The artist designed the assets, sent them over, and voila, the app blew up, with millions of downloads.

The artist submitted her invoice and then, a story as old as time, crickets from the celebrity. But that’s when the wheels fell off and things got wobbly.

Two days after I emailed the celebrity’s office to try to resolve this amicably, I received a FedEx’ed letter from a well-known litigation firm. The lawyers alleged that the artist owed the celebrity $10 million, because by speaking with me about the matter, she violated an NDA she had signed before she started the project. There was a clause in that NDA, that claimed each violation of the NDA would automatically cost the artist $10 million. The lawyers threatened that every additional email the artist sent to me would cost her an additional $10 million.

This is a “liquidated damages” clause, and you cannot enforce these unless they meet several criteria, including reasonableness. Also, most NDAs allow you to share information with your attorneys. And even if they don’t expressly, there are special rules for disclosures pursuant to attorney client privilege. Obviously, this was all ludicrous and predatory, but unfortunately this is common with these types of power dynamics.

Frankly, what was more problematic than the NDA fiasco was that the artist only had a scope of work and no underlying agreement with the celebrity. It created a wasteland for the lawyers to argue that she didn’t “perform” under the contract. For example, they tried to claim that the design assets were later tweaked by the celebrity’s team and so they didn’t have to pay her at all.*

So, a few easy takeaways:

• Get a Master Services Agreement and make sure the intellectual property rights to deliverables you create are not assigned until the client pays you. Chat with Amicus and make sure you're protected.
• Not all NDAs are standard. Use our form.

Moral of the story: use Counsel Club to draft a Master Services Agreement in 30 seconds!

*Also if you’re wondering, the artist got paid eventually because I believe you must meet force with force, so we won.

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