A non-disclosure agreement (NDA) establishes a confidential relationship and is used when one party must share confidential information with another party.
For example, an NDA is used when a business wants to ensure a potential vendor, customer, or partner will refrain from disclosing any information without the business’ consent.
What are Non-disclosure Aggreements used for?
Using non-disclosure aggreements to protect confidential information such as proprietary information is commonplace in law firms where breaching the provisions of this agreement or any term of the agreement will usually result in legal action.
Generally, the document should be clear and concise to help the other party sign the NDA quickly without needing much time for review. If you are drafting or evaluating a standard NDA for the first time, the following questions are important to answer.
One-sided NDA vs mutual NDA
A one-sided NDA applies only to one party. For example, if a business needs confidentiality but the potential customer does not, then a one-sided NDA is applicable. However, if both parties have confidentiality concerns then it is a mutual confidential relationship. Parties must also decide if the NDA will favor the Discloser or Recipient more, or both equally. Due to these challenges, you may decide to have a standard form for pro-discloser and pro-recipient, which can meet any need.
What information will the NDA include and what restrictions exist?
One of the most important steps when drafting an NDA is to determine what information will have disclosure and use restrictions and must be included. First, consider the information you will exchange and make sure this is covered in the confidential information defined. Also, determine how you will provide the information to the other party. Finally, determine if the confidential information will be labeled or if this is unnecessary. These decisions determine what provisions and verbiage are necessary.
Will any exceptions be carved out of the definition of “Confidential Information”?
Most NDAs contain carve-out sections which list several categories that are not part of the “confidential information” definition. Generally, this information is any public knowledge, information the recipient previously knew, and information the recipient developed on their own. The NDA should be specific about what information falls outside the confidentiality requirements, so both parties are protected.
What purpose can the recipient use the disclosed information?
The NDA should be specific about the purpose for sharing the information. In most situations, the only appropriate purpose is to help the recipient make decisions about pursuing a business relationship with the disclosing party. With this purpose in mind, the disclosing party can determine the necessary provisions to ensure the recipient uses the information for the correct purpose. These provisions set boundaries in the discloser-recipient relationship.
What time restrictions should be set up?
Some NDAs have no time limit and can even last indefinitely. It is entirely up to the parties to determine the appropriate time period. In many cases, the information does not have value past a certain period, and therefore, the parties will set up a specific time frame based on its value.
Sharing of confidential information included within the active time frame of the non-disclosure agreement is considered as a breach of contract if such actions take place during the active time period of the contract.
Who can receive the confidential information?
Finally, an NDA should be specific about private and public disclosure outlining who the recipient or receiving party can disclose the information to.
The recipient may need to disclose information to certain parties as part of a broader business plan or marketing plan, but without a provision allowing the disclosure in the NDA, the recipient would violate the agreement. Both the discloser and recipient will want specific language in these provisions to ensure each party has the rights they want.
When drafting or updating a nondisclosure agreement, these questions will help you write the best confidentiality agreement for your position, discloser, or recipient.
It is important to consider your goals and subject matter, what confidentiality rights you need, and what restrictions you want to protect your sensitive information (financial information), attorney client privilege, customer lists, and trade secrets. An NDA will help build a successful business relationship from the start.
For more information on drafting an NDA or to learn about contract management software, reach out to professionals at Evisort. If you found this article interesting then why not read about exemption clauses and how critical they are to business.