A non-disclosure agreement (NDA) is a legally binding document that restricts the disclosure of confidential information between two or more parties. In today's world, where businesses rely heavily on intellectual property and confidential information, NDAs have become an essential part of protecting sensitive information. Reviewing an NDA is an essential process that should not be taken lightly.
However, as a business lawyer I find too many people think that an NDA is a standard form document (which means they all say the same thing) – not true!
Here are some issues to consider if you are asked to sign an NDA:
- Who Are You Dealing With?
As a rule of thumb, the more the other party acts like Gordon Geko’s younger brother, the more carefully you need to review their NDA and the more detailed yours needs to be.
- Is it Really an NDA?
As mentioned, NDAs are designed to facilitate the exchange of confidential information to see if a deal can be done. Some variations include non-compete provisions. This is because a basic NDA will say that the other side cannot disclose to anyone else your confidential information – but that doesn’t stop them from using it for themselves (i.e., exploiting it without disclosing it).
- Is it One-Sided?
The most common problem I find is where the terms are reasonable, but they only protect the information of the party supplying the NDA – you are left out in the cold. Both sides information needs protecting.
- Definition of Confidential Information
The NDA should define the type of information considered confidential. This is key. The definition should be precise and comprehensive. The biggest mistakes I see are situations where the definition:
- a) is detached from reality. Virtually everything is classified as confidential even when it clearly isn’t. Its unworkable and will stop the other side from conducting normal business; and conversely
- b) is so vague there will immediately be an argument as soon as you try and enforce the NDA
The NDA should include any exclusions or exceptions. For example, information that is already publicly available, information that is developed independently, or information that is disclosed through a court order should not be considered confidential.
- Purpose of the NDA
The NDA should include the reason why the confidential information is being shared and (hugely important) the specific project or initiative it relates to.
- Subsidiaries, Group Companies, Employees
These connected parties tend to get added in without any thought. But is adding them necessary? If you don’t control them, don’t promise their good behaviour!
- Obligations of the Parties
The NDA should clearly specify the obligations of the parties involved. It should outline what information must be kept confidential, the manner in which it should be protected, and the consequences of any breach. The NDA should also specify the obligations of the recipient after the agreement has expired, including the destruction of any confidential information (but kept it realistic re this last point).
- Term and Termination
The NDA should specify the term of the agreement and the conditions under which it can be ended. It's essential to include a provision for termination by either party upon written notice.
- Governing Law and Jurisdiction
If either of the parties or elements of the project are based overseas it is important that the NDA specifies the governing law and jurisdiction of the agreement. This information is essential in case of any legal disputes.
- Representations and Warranties
The NDA should include representations and warranties from both parties. The disclosing party should represent and warrant that they have the right to disclose the confidential information and that the information is accurate and complete. The recipient party should represent and warrant that they will comply with the obligations of the agreement.
The NDA should specify the remedies for any breach of the agreement. This can include injunctive relief, monetary damages, or both. The NDA should also specify whether any damages are limited or unlimited.
- Confidentiality of the Agreement
The NDA itself should be considered confidential. It's essential to include a provision that prohibits either party from disclosing the existence of the agreement or its terms to any third party, except as required by law.
The NDA should be enforceable. This means that the agreement should comply with all applicable laws and regulations. It's essential to ensure that the NDA is not overly restrictive or unreasonable in its requirements.
In conclusion, reviewing an NDA is an essential process that should not be taken lightly. It's important to consider the definition of confidential information, the purpose of the NDA, the obligations of the parties, exclusions, term and termination, governing law and jurisdiction, representations, and warranties.
Please contact James O’Connell if you need any advice.