Non-Disclosure Agreements

Non-Disclosure Agreement

Confidentiality Agreement (CA) /Non-Disclosure Agreement (NDA)

Non-disclosure agreements are contracts drafted to let parties (businesses and/or individuals) interact with each other without fear of confidential information being compromised. Besides NDAs and CAs, non-disclosure agreements are also referred to as proprietary information agreements (PIA).

Types of Agreements

There are two types of NDAs; mutual and unilateral. Mutual NDAs bind both parties to protect both side’s confidential information, whereas, unilateral NDAs bind only one party, protecting the confidential information divulged by the other. In both cases, the party that shares confidential information is known as the disclosing party and the party that receives confidential information is known as the receiving party.

Factors to Consider in Forming a Non-Disclosure Agreement

A number of factors should be considered when drafting or reviewing a non-disclosure or confidentiality agreement. The factors depend on your standpoint within the agreement and whether you’re receiving or disclosing confidential information. The following list of factors should be considered at length.

The Necessity for a Non-Disclosure Agreement

Entering into a non-disclosure agreement will increase the risk that the recipient could face allegations of trade secret misappropriation. Allegations may be brought about in the event a recipient develops comparable information in the future or unintentionally uses or discloses the information.

Mutual versus unilateral agreements

Some non-disclosure agreements just cover disclosure of confidential information by one specific party. Others are considered mutual and deal with disclosures by both parties. In general, mutual agreements are less likely to include conditions that are one sided.

Non-disclosure and/or non-use restrictions

There are two critical restrictions in a non-disclosure agreement. First, the non-disclosure stipulation prevents the recipient from disclosing confidential information to any third parties. Second, the non-use stipulation prevents the recipient from using the confidential information for anything other than a specified purpose. In some cases, an NDA may not need a non-use provision which would allow the receiver to use the information for specific purposes so long as they do not disclose the confidential information.

Classification of confidential information

The discloser will want a broad definition of confidential information and may also want third party information to be deemed confidential. The receiver will want to narrow the definition of confidential information in order to avoid being compromised by the information. The distinction can be narrowed by limiting it to classified information that is disclosed in writing, specifically tagging the information as confidential, pinpointing the information that is considered confidential, or specifying the dates in which information was disclosed. In most cases, the discloser will want to avoid some of the restrictions because of the possibility of accidental disclosure or excessively marking information as confidential. Both actions have the potential of hindering the ability to enforce the non-disclosure agreement with respects to legitimate trade secrets.

Confidential information exceptions

The recipient will prefer broad exceptions to the classification of confidential information along with the typical exceptions, including: publicly known information( if it is in the public domain prior to disclosure, the information is publicly known and already generally available following the disclosure through no inaction or action of the recipient), information that is already in the possession of the recipient without confidentiality restrictions, any information obtained by the receiver from a third party without acquiring it through a breach of confidentiality, and any information independently formulated by the recipient. The discloser will attempt to restrict the exceptions and/or add qualifiers that may require the discloser to prove the exception with coinciding written records. Note- the standard exception for information required to be divulged by law needs to be an exception to the obligation of nondisclosure. In contrast, an exception from the characterization of confidential information allows the recipient to disclose the confidential information to anyone.

Residual information

As the recipient, it is important to include a clause that permits the recipient to utilize the discloser’s information which has been retained in their memory. The recipient should also avoid being negatively affected by obtaining the information which is frequently rejected by the discloser. If a residuals clause is incorporated, the discloser will more than likely try to limit it to the use of general knowledge and skills, confidential information retained in the memory of their employees after a specific amount of time, and clearly noting that the discloser is not granting a license to the recipient.

Limited/Permitted disclosures

The discloser will prefer to limit disclosures to contractors and employees, along with comparable non-disclosure obligations. In addition, if disclosure is a legal requirement, the discloser should have the recipient inform the discloser in advance and provide them with the opportunity to get a protective order, or in some other fashion preserve the confidentiality of the  information.

Term

The non-disclosure agreement will usually specify the duration of the obligation to protect confidential information along with the time frame to which the agreement applies to information that has been previously disclosed.

Relationship of the Parties

Because non-disclosure agreements are typically signed between parties in the exploratory stage of their business relationship, NDAs usually contain language that clarifies the fact that NDA doesn’t oblige the two parties to present intellectual property rights, do business together, or create a relationship between parties.

Contact Us Today!

For more details on Non-disclosure agreements or confidentiality agreements, feel free to call us at 305-921-0440 or send us an email to Romy@JFLawFirm.com

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