NDA Key Points: Make Sure You Are Truly Protected

Non-disclosure agreements (NDAs) are often called “confidentiality agreements.” They are business documents with essential provisions designed to help a disclosing party protect its confidential information, including trade secrets. The purpose of NDAs is to help safeguard information between two parties that are considering doing business together, so they can freely exchange private and confidential information without the fear of negative repercussions.

NDA Key Points to Cover

The protections afforded in NDAs are often critical in technology endeavors. This is particularly the case when a company is dealing with suppliers. For startups, when negotiating with new partners or investors, having a good NDA will be detrimental to help protect what could be the next greatest idea/invention.

It is important to understand that, as with all agreements, the parties must ensure that non-disclosure agreements cover the key points for the specific type of information the disclosing party needs to protect. There are a few vital things to understand, and the following considerations will ensure that your NDAs are accomplishing exactly what you want them to achieve.

Mutual or Unilateral Non-Disclosure Agreements

A key point for starting to draft or review an NDA is knowing whether it is a mutual or unilateral.  A mutual NDA is one where both parties disclose confidential information. Therefore, both parties should have a duty to keep the other party’s information confidential. On the other hand, a unilateral NDA is one where only one party is disclosing confidential information. In such a case, only the party receiving the information must have a duty to maintain confidentiality of the information being received.

NDA Key Points on Confidential Information Types

Since each deal talk or negotiation is unique, the definition of “confidential information” will vary each time. Defining confidential information should include details on what each party disclosing information deems to be confidential in sharing with the other party.  It is important to ensure that the definition covers the specific information the disclosing party will be sharing with the other. For example, if a party will be disclosing information about a manner of obtaining leads or discovering market opportunities, then language that specifically identifies and covers those ideas should be included within the definition section of the NDA identifying the specific confidential information.

NDA for Protection of Intellectual Property Rights

Another key point for including in NDAs is related to disclosure of IP information. The non-disclosure agreement should clearly indicate that the sharing any intellectual property information does not, in any manner, create any type of license, transfer, or grant of rights over such IP.  Similarly, and especially when a disclosure deal involves research and/or innovations, the non-disclosure agreement should specifically state the warranties that are given in connection with disclosure of the intellectual property.

Two key NDA questions to address should include:

• Does the discloser own the intellectual property?

• Can the discloser warrant that the intellectual property does not infringe on a third party’s rights?

The Duty to Protect Confidential Information in NDAs

Parties often forget the importance of the duty imposed on them through an NDA to protect the information they received.  A key element in drafting a proper NDA is including the necessary language for the proper level of protection of the information.  At the very least, the party receiving information has the duty to protect the received information in the same manner it protects its own confidential information. However, in more complex NDAs, the receiving party may agree to additional duties, such as designating specific measures to protect the information. Such measures could include, for example: using password protection, physical locking, or even designating only specific individuals with access to the information.

Every NDA should include a specific explanation of the level of protection to be afforded to the confidential information, with the general understanding that the more sensitive the information, the more layers of protection would be necessary.

How Long Does NDA Confidentiality Obligation Last?

The obligation to keep information confidential will last as agreed between the parties in the NDA.  The obligation can be limited to the duration of the agreement.  However, the parties can generally agree to extend the duration beyond that.  It is typical for NDA confidentiality obligations to last one to three years after the agreement ends.  But, the NDA can require the confidentiality obligations to last indefinitely, if the parties agree.

NDA Key Points to Remember for Every Confidentiality Disclosure

The language included in an NDA must be followed to the letter of such agreement, so when finalizing the agreement, the parties should understand and keep in mind that:

• having an NDA is not sufficient to protect your information if the NDA has holes in it;

• the NDA should include language and provisions specific to the specific, unique disclosure;

• they should never blindly sign an NDA, but make sure all provisions are understood, agreed upon, and that any assumed responsibility can actually be kept; and

• the NDA obligations may last past the term of the agreement, so it is important to have procedures in place to ensure future compliance with the obligations.

For more information about confidentiality agreements, see our Corporate Law and Commercial Transactions and Industry Focused Legal Solutions pages.