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August 11, 2023

How to navigate the legal side of nondisclosure agreements

Nondisclosure agreements — known as NDAs or confidentiality agreements — are routine business in many industries. 

Personnel in sales, procurement, R&D, IT, marketing, finance and elsewhere are regularly being asked, or requesting others, to sign NDAs. Not all NDAs are created equal, and businesses are wise to institute basic protocols for reviewing these agreements. Some potential relationships are so significant that the NDA justifies meaningful legal review, but in many cases, value can be added by a thoughtful internal review process which considers the following points:

Is it the right form?

Courtesy / Preti Flaherty
Kristy Abraham

NDAs generally come in two forms: unilateral or mutual. Businesses need to determine which form is proper for each situation. If only one party will be sharing confidential information, a unilateral form is proper, and if both parties will be sharing confidential information, a mutual form is proper. If using a unilateral form, are you the discloser or the recipient? For disclosers, robust protections are preferred, but recipients should seek reasonable restrictions that are easy to comply with. Your role in the relationship will inform how you approach the remaining five considerations.

How is 'confidential information' defined?

Does it adequately cover what you want to protect as a discloser? As a recipient, is it over-inclusive? Does it require that information be marked as confidential to be entitled to protection? If so, as a discloser you’ll need a process in place for making sure all items are marked appropriately.

Why are you exchanging confidential information?

NDAs should provide that a recipient can only use the confidential information for a stated purpose. A broadly worded purpose such as “the possibility of entering into a business relationship” provides more opportunity for the recipient to use the discloser’s information. Conversely, a narrowly tailored purpose of “to evaluate entering into a long-term supply agreement” is more limited in scope and protective against uses of the confidential information for unrelated reasons.

How long do the obligations last?

A term of two to five years is most common. However, trade secrets are sometimes treated differently and provide for indefinite protection. As a discloser, if the information to be disclosed constitutes a trade secret, this language can be critical protection for you.

Are there practical considerations at issue?

NDAs should require a recipient to return or destroy confidential information upon request. Does your internal IT system provide for automatic back up and can you readily delete backed up information? If you need a carve-out for this, the obligation of confidentiality should continue for as long as the information remains a part of the backed-up information.

Who is on the hook?

Recipients may need to share confidential information with their employees, professional advisors, company officers and directors, and sometimes affiliated companies. If not expressly permitted, disclosure to these groups might be a breach of the NDA.

From the discloser’s perspective, make sure that there is express language that the recipient is liable for a breach of the NDA by these parties and ensure that you have the right to seek injunctive relief for any breach. Monetary damages are good, but with sensitive company information, the right to seek a court order to stop continued disclosure or improper use of confidential information is often more valuable.

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