“NDA” is an abbreviation for a “non-disclosure agreement.” They exist in different forms and have different uses. Employers typically require NDAs as a condition of employment in order to protect confidential company information and trade secrets. NDAs are also used when one party wants to disclose information to someone else but needs protection regarding its use. When both parties want to exchange information, a mutual NDA is used.
There are key differences in the forms used. Here are some of the primary considerations:
1. What is the definition of “Confidential Information?”
The disclosing party wants to define “Confidential Information” broadly being anything said verbally or in writing by the disclosing party. That way, all information is protected under the NDA. Yet for the receiving party, keeping track of what has been disclosed is nearly impossible, especially when multiple parties are involved in the exchange, and many conversations occur orally. Generally, the receiving party wants to narrow the definition to items marked Confidential Information to limit the risks it undertakes.
2. How will Confidential Information be used?
The disclosing party seeks to limit the use of Confidential Information to a specific task, goal, or objective and not for general business purposes. Thus, the burden falls on the receiving party to protect the information that it receives from the disclosing party, including taking all appropriate steps within the receiving party’s business to prevent a violation of the use provision.
3. Is the information true, accurate, and correct?
Sometimes, NDAs will seek a representation from the disclosing party that the information being disclosed is accurate. Depending on the purpose of the NDA and the intention of the parties, the receiving party may want to be able to rely on the information. That type of request may be troublesome for the parties as the disclosing party does not want to be responsible for any reliance, preferring that the receiving party perform its own due diligence.
4. The existence of the relationship between the disclosing and receiving parties.
Sometimes, one or the other parties to the NDA (and, occasionally, both parties) do not want anyone to know that the exchange of information is even taking place. An example is an employer that is contemplating the sale of its business. The employer may not want its employees to know anything about the exchange of information with the potential buyer, particularly if the transaction does not go forward. The mere knowledge by the employer’s personnel may negatively affect morale and harm the employer, regardless of whether the deal moves ahead or not. Therefore, it is not unusual to include a provision in the NDA that the existence of the NDA itself may not be disclosed.
5. Do employees need to be protected?
Often, once the disclosing and receiving parties enter into an NDA, important employees are asked to assist in carrying out the purpose(s) for which the NDA was made. The employees’ role may be evaluating material exchanged or participating in meetings held to discuss the opportunity. Both the disclosing and receiving parties have an interest in not having their employees poached, so non-solicitation covenants are included.
6. How long is Confidential Information under an NDA to be held as confidential?
Some NDAs do not address the length of time that Confidential Information should remain confidential, while other NDAs explicitly state a term (e.g., days, months, years). What is clear is that it is in the best interests of both the disclosing and receiving parties for the receiving party to know how long it must protect confidential information, especially in a competitive marketplace. Confidential Information may not remain confidential if any of the information exists in the public domain, it was provided by a third-party on a non-confidential basis, or it was developed or acquired without violating obligations of the NDA.
7. Are there remedies?
Most NDAs provide for attorneys’ fees for the prevailing party in the event of a breach and improper disclosure. Some NDAs provide for the right to prevent a party from disclosing any Confidential Information and, in the event of a breach, provide for injunctions and damages. These provisions are not only important to protect a party’s rights, but they may also serve as a deterrent to bad actors.
8. What laws and venues are appropriate?
Care should be exercised in the negotiation of NDAs to be sure that one of the parties is not agreeing to be bound to the laws of Canada or arbitration in Hong Kong, for example. It is appropriate for the parties to agree on – or for one party to insist – that the laws of the state where the exchange of Confidential Information will occur be used. In most instances, our clients seek to have the laws of a DMV jurisdiction apply, and not California or New York.
The goal of this article is to be sure that our clients do not hastily sign a non-disclosure agreement that could contain unreasonable or unfair provisions – whether they are businesses or employees. Each client should create an NDA that protects its specific business and interests and not necessarily sign another party’s agreement. We can help protect your interests whether you are the disclosing or receiving party under any NDA, but please send us the document before you sign it!
This article was co-written with Jeremy Hesselbein, J.D.
