Non-Disclosure Agreements (NDAs), often called “confidentiality agreements,” are essential documents that can help a company protect its confidential information, including trade secrets. Their purpose is to ensure the free flow of information between two parties that are thinking about doing business together — or that are already doing business together — so that they can exchange private and confidential information with no fear of negative repercussions.
These protections are often critical in technology endeavors, particularly when dealing with many suppliers. And in the case of a startup, when new partners and investors are entering the fray often, having a good NDA will help protect what could be the next billionaire-dollar idea.
As with all agreements, however, it is important to ensure that non-disclosure agreements cover exactly the type of information that they need to cover. There are a few key things to understand, and the following considerations will ensure that your NDAs are accomplishing exactly what you want them to achieve.
A mutual NDA is one where both parties disclose confidential information, and therefore, both parties will have the duty to keep the other party’s information confidential. A unilateral NDA, by contrast, is one where only one party is disclosing confidential information. In such cases, only the party receiving the information has the duty to maintain confidentiality.
The definition of Confidential Information will vary from deal to deal, and it should include information that each party deems confidential that it will share with the other party. It is key to ensure that the definition covers the information that the disclosing party will be sharing with the other party. For instance, if a party will be disclosing information about market opportunities, then “market opportunities” — or a similar phrase that covers that idea — should be in the definition of section regarding confidential information.
The non-disclosure agreement should clearly state that sharing any intellectual property information with the other party does not create any type of license, transfer or grant of rights over the intellectual property. On a similar note, especially if the deal involves research and new innovations, the NDA should state what warranties are given in connection with disclosure of the intellectual property.
Some key questions to be addressed 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?
All too often, companies forget the importance of the duty imposed upon them to protect the information received. In the most basic scenarios, the receiving party simply has the duty to protect the information in the same way it protects its own information. In more complex agreements, the receiving party oftentimes has additional duties, such as designating specific measures to protect the information. This might include password protecting, locking, designating individuals who may access the information, and so forth.
Each and every NDA should take into account the level of protection that should be afforded to the information, with the general understanding that more sensitive information should be afforded additional lawyers of protection.
The confidentiality obligation will last as agreed between the parties. It can be limited to the duration of the agreement, but parties generally extend the duration beyond that. NDA confidentiality obligations commonly last one to three years after the agreement ends. The confidentiality obligations can be made to last indefinitely if the parties so desire.
