Written by Éamon Chawke | December 17, 2024
NDA (non-disclosure agreements or confidentiality agreements) are legal agreements/contract that people encounter frequently, both in business and personal life, in a variety of contexts.
Businesses looking for funding will often sign an NDA before they disclose information about their business to potential investors. Artists, authors, designers, developers, musicians and other creatives who are generating know-how, trade secrets and other valuable IP will often sign an NDA before they disclose information to agents, consultants, distributors, manufacturers, publishers, producers, suppliers and other service providers who they are intending to collaborate/work with on their business, idea, product or project.
But what should you do when you are presented with an NDA for signature? What are the risks/traps that you look out for? Should you just sign it? Here are 10 things to think about.
NDAs can be mutual/two-way or unilateral/one-way. If it’s a mutual NDA, both parties’ confidential information is protected (usually, but not always, on the same terms i.e. each party has the same confidentiality obligations in respect of the other party’s confidential information). If it’s a unilateral NDA, only one party’s confidential information is protected. Before you sign an NDA, ensure that the agreement actually protects any confidential information that you are intending to disclose, and that it doesn’t only protect the confidential information disclosed by the other party.
The parties to the NDA will usually be identified and defined at the start of the agreement (e.g. the names of two individual people, the names of two companies, or the name of one individual person and one company). Whoever the parties are: (a) check that the names are correct (e.g. if a company name is incorrect or if the company is dissolved, then the contractual confidentiality rights may be unenforceable); and (b) check if shareholders, directors, employees and other companies (e.g. subsidiaries) are also included (this is especially important if confidential information will need to be shared with people/entities connected to one of the main parties to the NDA).
Usually, but not always, it will be in the best interests of both parties to define confidential information as broadly as possible, whilst also specifying certain categories of information that need to be protected (e.g. financial information, information relating to clients/customers, trade secrets etc.), so that any/all confidential, proprietary or otherwise sensitive information is protected. In addition, if you are intending to disclose a specific document or a specific piece of information, it may be worth specifically mentioning that document/information within the definition of Confidential Information (e.g. “X report” or “any/all information relating to X project”). Finally, it may also be worth specifying that confidential information is protected under the NDA “whether or not it is labelled/identified as confidential.” In some cases, this provision is included to avoid a situation where confidential information is inadvertently excluded from the scope of the NDA (e.g. if someone forgets to include the word “confidential” in a document or an email). In other cases, this provision may be excluded to avoid imposing contractual confidentiality obligations in respect of information that was never intended to be included within the scope of the NDA.
Usually, it will be in the best interests of both parties to define the purpose of the NDA as narrowly/specifically as possible (e.g. “for the purpose of exploring the possibility of the parties working together in connection with X project”). If the “Purpose” is too broad/vague, you may inadvertently permit the other party to use your confidential information for an unintended purpose.
Each party will usually be obliged (at the very least): (a) not to disclose to the other party’s confidential information to the public; and (b) not to use the other party’s confidential information for any purpose other than the Purpose (as defined in the NDA). However, in some cases it will be appropriate to include additional, more stringent, obligations, e.g. (a) the obligation to have certain technical measures in place to ensure confidentiality (e.g. encryption, passwords, secure servers etc.); and/or (b) the obligation to have certain organisational measures in place to ensure confidentiality (e.g. confidential information may only be disclosed to certain officers, employees, advisers or subsidiary companies who must also sign NDAs so that they are also bound by the same confidentiality obligations).
Each party will usually be permitted to disclose the other party’s information in certain (limited) circumstances, e.g. (a) where the information is already in the public domain; (b) where the information subsequently comes into the public domain, otherwise than as a result of a breach of confidentiality; and (c) where disclosure is required by law or ordered by a court. However, in some cases it will be appropriate to include caveats to limit the scope of the exclusions, e.g. (a) if a receiving party is permitted to share confidential information with its officers, employees, advisers or subsidiary companies, it must be on a ‘need to know’ basis and the disclosing party must be notified in advance and given the right to object; and/or (b) if the receiving party is permitted to disclose confidential information as a result of a legal obligation or court order, the receiving party must be notified in advance (where legally permitted) and given an opportunity to challenge the legal basis for the disclosure (e.g. it’s possible to challenge a request for disclosure under the FOIA).
In some cases, the parties will want confidentiality obligations to last for a long period of time (e.g. in perpetuity or for as long as the information remains confidential). This may be appropriate in circumstances where the information being disclosed is highly sensitive (e.g. a valuable trade secret). In other cases, the parties will want confidentiality obligations to last for a relatively short period of time only (e.g. 1 year). This may be appropriate where a relatively small volume of information, which is not highly sensitive, is being disclosed (e.g. marketing or other strategic business plans which will in any event become public knowledge in the near future). In this scenario, the parties may not wish to have perpetual contractual confidentiality obligations hanging over them.
It’s worth thinking about what happens after the NDA has expired and/or after the Purpose has expired (e.g. the initial discussion between the parties about a potential collaboration is over). In some cases, the initial discussion/disclosure will prove fruitful, and the parties will decide to work together. In that scenario, a new agreement will usually be put in place between the parties and the confidentiality clause in that agreement may provide for the continued protection of any/all confidential information exchanged between the parties (including any confidential information disclosed at the initial stages). In other cases, the parties will decide not to work together, and in that scenario it is important to provide for the return or (irreversible) deletion/destruction of any/all confidential information disclosed as soon as possible.
In reality, even though lots and lots of NDAs are negotiated and signed, a tiny proportion of those NDAs are ever enforced. However, NDAs are nevertheless useful ‘regulatory’ documents (i.e. the ‘regulate’ the actions and behaviour of the parties vis-à-vis confidential information by providing clear instructions regarding what the parties can and can’t do with each other’s confidential information). Moreover, if the potential consequences of a breach are reasonable/proportionate and clearly stated (e.g. damages, injunctions and other remedies), the document can provide useful leverage when it comes to remedying a breach through discussion and negotiation (even if court proceedings are never issued for breach of contract).
‘Boilerplate’ refers to the clauses/provisions usually found at the end of NDAs (and other commercial contracts), often with little or no variation from contract to contract. Because they are seen as ‘bog standard’ they are often skimmed over or ignored completely. However, it’s worth checking for any provisions that might impact your rights, including in particular: (a) the governing law and jurisdiction clause which will specify whether the NDA is subject to the law/court of England or another jurisdiction; (b) the warranties clause which should usually specify that no warranties are given in relation to any confidential information disclosed (e.g. especially in relation to the accuracy or completeness of any confidential information disclosed); and (c) the IP clause which should usually specify that nothing in the NDA should be construed or interpreted as an assignment, licence or other transfer or any intellectual property rights (or any other rights) in the confidential information disclosed (except of course the right to use the information for the Purpose specified in the NDA).
NDAs are often seen as short/standard/routine documents, but they are nevertheless legally binding agreements/contract. Therefore, they should always be approached with caution, in particular to avoid: (a) inadvertently giving away valuable rights; (b) inadvertently accepting onerous obligations; and/or (c) otherwise prejudicing your legal position.
Briffa are experts in all aspects of intellectual property law and practice, including all matters relating to trade secrets and other confidential information. If you would like to arrange a consultation, please get in touch with us on info@briffa.com.
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