Take 5: Considerations For Your Non-Disclosure Agreement
Non-Disclosure Agreements (“NDAs”) are a frequent tool used in many types of negotiations. Whether you are interviewing a prospective employee, entering discussions with a potential business partner, or seeking capital, NDAs are often put in place prior to commencement of any discussions. They exist to protect the confidential proprietary information and trade secrets a business has developed. Whether you are being asked to sign an NDA or looking to develop a form NDA for your business, you should keep the following factors in mind:
1. How is “Confidential Information” defined? The goal of any NDA is to protect a company’s confidential information; therefore it is important to review how the term is defined in the NDA. Company’s will normally seek to have as broad a definition as possible. Questions to keep in mind: Does the NDA only apply to information marked as confidential? Does the NDA only apply to information provided in writing? Does the NDA apply to information that may have been provided prior to the NDA being signed (e.g. is it retroactive)? Generally, a company will seek to have as broad a definition of “Confidential Information” as possible in order to ensure all of its information is protected.
2. Who is covered by the NDA? This question is most applicable to business to business NDAs and is an important part of drafting a strong NDA. For example, if you are seeking to raise capital for your business and ask a potential funding partner to sign your NDA, you want to ensure that the NDA covers any individual or entity that funding partner may share your confidential information with. You also want to ensure that it is the funding partner’s responsibility should the NDA be breached by any individual or entity the funding partner shared the confidential information with and who impermissibly disclosed any confidential information. Another consideration is whether the NDA is mutual or one-way (meaning only one party’s information is subject to confidentiality restrictions). Generally, it is advisable to have a mutual NDA in place.
3. What is the Term or length of the NDA? When reviewing an NDA, pay attention to how long the term of the NDA is for, and if there are any confidentiality obligations that continue even after the expiration or termination of the NDA. This is most common with trade secrets and NDAs will often contain language that states a party’s confidentiality obligations with regard to a trade secret remain in place as long as the trade secret remains a trade secret, which would be well after the termination of the NDA.
4. Is injunctive or equitable relief available? Breaching an NDA is a big deal and can have serious consequences. Further, it’s a bell that cannot be un-rung. However, in the event a party does breach an NDA, you want to be able to limit that damage by ensuring that equitable relief is available meaning you have the ability to get a court injunction prohibiting a party from further violating the NDA.
5. What happens to the Confidential Information once an NDA is terminated? Generally, once an NDA terminates, a party must either return or destroy confidential information. Sometimes, you will see language that a party can retain confidential information as part of the company’s data retention policy. However, if you do see language like that, you will want to ensure there is additional language indicating that the party retaining such confidential information remains subject to the confidentiality provisions of the NDA for so long as the information is retained.
We recommend most businesses have a form NDA in place when situations arise. Cruxterra has substantial experience drafting and reviewing NDAs. If you’d like help drafting an NDA, reviewing an NDA or just have questions, please reach out. We’d love to connect!
LetsGo@cruxterra.com
