By: Tracy Pearson  [10/26/22]

Simply put, a non-disclosure agreement (NDA) is a contract between willing parties who agree to keep certain information confidential. The purpose of an NDA is to keep confidential information protected from disclosure to an unauthorized third party. Generally, there are two types of parties in an NDA, the “disclosing party” who is the party that shares confidential information, and the “recipient” or the “receiving party” who is receiving the confidential information. The parties may each be exchanging information with one another, so at times a party could be both a receiving and disclosing party. When a party may switch roles throughout the course of their relationship, a mutual nondisclosure agreement (MNDA) is needed to protect confidential information.

There are many contexts in which NDAs may be used. An employer will certainly want to protect information learned by employees during the course of their employment. A business that is conducting due diligence for an acquisition deal will want confidentiality of deal terms. An NDA may be used for startups who are pitching their ideas to investors in an effort to raise funds for their project or idea. Certainly, there are roles for NDAs in the entertainment and arts industry. NDAs are also often required between private Government contractors and state and federal agencies who are working together. The main takeaway is there are many reasons why NDAs are an essential part of business and commercial transactions.

In practice, it is common for companies to pull prior used NDAs out of a drawer and repurpose it for a new transaction or business relationship. This can be very risky because not all NDAs protect the same information or involve the same or similar transaction. It is common to see overbroad definitions of “confidential information” and extremely long periods of protection including indefinitely. Sometimes, NDAs will contain noncompete and non-circumvention provisions that aren’t relevant to the relationship. It is always advised to carefully review and negotiate NDAs. If a party is working with someone unfamiliar a poorly drafted NDA damage the business relationship before it even begins. Poorly drafted NDA’s also run the risk of not being legally enforceable through arbitration or litigation if there is an unauthorized disclosure.

If you are writing an NDA from scratch it is important to ask what information do I want to protect? Confidential information is wide-ranging. Intellectual property such as patents, trademarks, and copyrights, customer lists, ideas, marketing strategies, purchase prices, bid amounts, and trade secrets are all examples of what could potentially be identified as confidential information. Generally, NDAs have specified term limits. It is typical for an NDA to expire anywhere between a three (3) and (5) year term. You also need to be aware of what are referred to as “survivability” clauses. A survivability clause may extend certain provisions of the NDA for many years beyond termination. If you have already started to share confidential information with a party before executing an NDA, then previously disclosed confidential information should be incorporated into the agreement.

If you are exchanging information with a large or well-established company, they may have an NDA that is required to execute before working with them. In this case, there may not be a lot of room for negotiations. While you may not have a lot of the room to negotiate, you may always ask the company for clarification. You can also seek the advice of your own counsel of choice.

NDAs are an essential part of the business process. Based on the fact there is no one-size-fits-all NDA it is important to spend time and close attention to entering into this type of agreement to avoid negative and costly consequences down the road.

Our firm has the experience and resources to deliver custom contracts of all varieties to meet your needs on your schedule. To learn about how Dunlap Bennett & Ludwig can assist you with your legal needs, contact us by calling 800-747-9354 or by emailing clientservices@dbllawyers.com.


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Posted in: Business Law

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