What is a Non-disclosure Agreement?
Non-disclosure agreements are a common contract type that come across the desk of a business owner, executive or in-house attorney. They are put in place when businesses or individuals want to share confidential information with another party.
While in many instances they are not high-risk contracts, it is important to have a pre-approved template used team members of your own company or have them reviewed if on another company’s paper. Below are the key elements of a non-disclosure agreement:
Mutual vs. Non-Mutual NDAs
There are two types of NDAs, mutual and one-sided. Mutual NDAs require both parties to keep information governed by the NDA confidential. One-sided NDAs only require the receiving party to keep the information governed by the NDA confidential. If you are providing confidential information, it is best to use a one-sided NDA so that you are not obligated to keep any information disclosed during the exchange confidential.
Definition of Confidential Information
This section of the NDA lays out what ‘information’ needs to be kept confidential. The disclosing party naturally wants this section to be as broad as general, while the receiving party wants to keep it narrow. Things that can be tricky is what information qualifies. To illustrate this, it could be all information, only information with a ‘confidential’ designation, only written information (so excluding what is spoken about), etc. A bit more to it than what you would think on the surface.
Parties of Agreement
This section defines who the parties are that are entering the agreement. If it is a one-sided NDA, the terms ‘disclosing party’ and ‘receiving party’ can be used to further define the parties. Keep in mind information may be shared with third parties in some business transactions, so they will need to be addressed in your agreement.
Term of Agreement
This section essentially defines how long the NDA will last. Should it last forever? Should it last for 3 years? This is what is defined in this section. If you are the disclosing party, you may want this to last forever. However, you may have trouble getting the receiving party to agree to this. What is reasonable depends on the industry and nature of the information being disclosed.
Confidentiality Obligations by Receiving Party
This section defines the two obligations of the receiving party, which are keeping the information confidential and not using the confidential information. For the part requiring the receiving party to keep information confidential, the disclosing party may require them to take ‘reasonable’ steps in doing so. This could include limiting access in ones organization to a certain group of people, among other things. The second part, not using confidential information, is also important since you do not want the receiving party using the information for their own gain, and your loss.
Exclusion from Confidential Treatment
This section defines situations where the receiving party is excluded from keeping information confidential. It may be unfair, for example, for the disclosing party to require information to be kept confidential if it was already known to the public or to the recipient themselves. There are many common and reasonable exclusion situations to be considered.
This section outlines what jurisdiction a dispute would be handled in, should the receiving party breach the contract. It is always best for the disclosing party to require the agreement to be limited to their jurisdiction.
There are other common sections of NDAs that may be considered or are more specific based on certain industries. As we always say, if you have any question or need advice on NDAs, please speak to a lawyer!