Nondisclosure or confidentiality agreements (NDAs) are among the most common documents attorneys draft and review for clients. They are so common, in fact, that where a client needs to execute a large number of facially distinct but substantively similar NDAs, it may make sense for the client to draft and review these documents itself. To assist the client in doing so, we typically provide it with an informal and non-exhaustive list of considerations, of the kind recreated below, to bear in mind when thinking about each specific NDA.
- Think about what confidential information (CI) you expect to share and what you expect to receive under the agreement. If you’re not going to disclose anything confidential, then it should be less important to you if the agreement, in your view, provides inadequate safeguards for the protection of CI. A unilateral NDA, protecting only information shared by one of the parties, may even be appropriate.
- What constitutes CI should be defined with as much precision as possible. Included with the definition should be exemptions that specify that information is not CI where it has been independently and properly obtained outside the context of the NDA, such as from third-parties, or can be independently derived without CI.
- Make sure that you understand and agree with the obligations of the Disclosing Party (likely a “defined term” in your agreement) to identify CI as such. Some agreements will require a Disclosing Party to identify all CI as confidential at the time of disclosure or perhaps a reasonable amount of time thereafter, including verbal disclosures. Other agreements will require the Receiving Party (also likely a “defined term”) to maintain the confidentiality of information it should reasonably understand would be CI. Both are common ways to frame the obligation, and either can be appropriate in a given context.
- Does the agreement adequately limit the Receiving Party’s use of CI? Usually, the agreement will define the reason for the disclosure of CI. A Disclosing Party should make sure that its CI isn’t used for purposes outside of what the Disclosing Party intends.
- The agreement should also explicitly allow the Receiving Party to disclose CI where required to do so by law. If you are a Disclosing Party, you should make certain that such a clause provides that the Receiving Party will provide you with adequate notice of its intent to comply with what it believes is its legal obligation to disclose CI, allowing you to intervene and prevent the disclosure, if appropriate.
- The agreement should usually allow the Receiving Party to disclose CI to a list of its personnel, who, the parties agree, will be bound by the same confidentiality obligations. This list can be tailored to include only the personnel who should have access to CI and to exclude those who specifically should not have access (due to obligations from non-compete agreements or for other reasons). Absent a provision allowing affiliates, attorneys, consultants, employees, officers, etc., access to CI, each such person that will access CI may need to execute the NDA separately, and the agreement may need to include language tying access to CI to continued employment or affiliation with the Receiving Party. Of course, the more you are concerned about subsequent disclosure of your CI, the more you will want to maintain an up-to-date list of which personnel, exactly, have access to your CI.
- Is the “term” of the confidentiality obligation reasonable – i.e., does it last long enough into the future? In most instances the obligation will, and should, extend beyond the termination of the relationship between the parties. But how much longer will the information remain valuable by virtue of its confidentiality? If the CI is the kind that goes stale quickly, a shorter term might be as effective while imposing a lesser burden on the Receiving Party.
- In addition to specifying a term, the agreement should define what happens to CI upon termination. Most agreements will require the Receiving Party to return or destroy all CI. Some agreements, however, allow the Receiving Party to maintain an archival copy of received CI. If there is disagreement about a disclosure in the future, an archival copy can help resolve it. For instance, if a Disclosing Party, after termination, contends that the Receiving Party is continuing to use CI, and the Receiving Party disputes that it received the alleged CI from the Disclosing Party, a record of the CI disclosed can verify or rebut that the alleged CI at issue was actually disclosed by the Disclosing Party. Ideally, NDAs will include language that permits the Receiving Party to maintain CI that is archived or backed up automatically by the Receiving Party’s IT. This almost never comes up, however, and is arguably covered by clauses that define the steps the Receiving Party must take to maintain confidentiality as analogous to those it takes to preserve the confidentiality of its own CI.
- The agreement should include whatever disclaimers are appropriate regarding the relationships of the parties. Many parties enter into NDAs to allow for discussions related to a transaction. The NDA itself, in that case, does not imply that the parties agree to consummate the transaction, and the NDA should expressly state that no such implication is intended. If the parties are not establishing a joint venture, to give another example, it is appropriate to say that no JV is intended or implied by the agreement. Likewise, where one party is the independent contractor of the other, it is advisable to include language to that effect in the agreement.
- The agreement should generally provide the parties’ assent to the following two provisions: (i) injunctive relief in case of breach – i.e., a judicial directive to engage or not engage in activity that discloses or uses CI; and (ii) a specific venue and applicable law to adjudicate disputes over the agreement. Under New York law, for example, it is more difficult than in many other jurisdictions for a party to argue that evidence outside the language of the agreement itself has a bearing on how it should be construed. The parties’ assent to jurisdiction in a given venue can become critical if one or both has grounds to argue that it doesn’t have minimum contacts to the venue of choice. Litigating the question of venue (or whether injunctive relief is available) can drive up the costs of enforcing the agreement significantly.
Again, the list above is not intended to be exhaustive or to cover all permutations of NDA. If a Disclosing Party intends to share trade secrets, for instance, a more elaborate description of the steps the Receiving Party must take to safeguard the CI may be appropriate. If a client has doubts about any particular provision, it should consult its attorney. We have found, though, that these basic considerations are useful for clients with the time and desire to handle their own routine NDAs. Frequently, the client is in the best position to understand the true nature of its CI. Giving it the tools to understand what it is protecting or giving up, and why, can make the NDA process much more efficient and effective for all parties.
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National Law Review, Volume VII, Number 65