Many business discussions start by signing a non-disclosure agreement (NDA). There are many forms available, both from free sources online and from commercial form providers. However, not all NDAs are created equal, and a businessperson who uses a form without fully understanding it may be putting their business at risk. Here are just a few of the points that vary between NDAs, and can make a huge difference (for better or worse) in the impact of the agreement.
One-way vs. two-way
One very basic issue is who should have confidentiality obligations. Some NDAs are “one-way” so that only one recipient has confidentiality obligations. These are ideal for sharing limited information with vendors, consultants, investors, and similar parties without limiting the disclosing party’s ability to use any information provided in return. Other NDAs are “two-way,” “mutual,” or “reciprocal,” so that both parties have confidentiality obligations. These are generally more appropriate for open-ended discussions about business collaboration.
Scope of confidential information
Some NDAs only apply to information that is marked or clearly indicated as “confidential.” Others apply to broad categories of technical and commercial information, whether or not they are marked or clearly indicated as “confidential.” The optimal approach depends on the specific circumstances.
Disclosure to related parties
There may be good reasons to share confidential information with consultants, investors, subsidiary and affiliated companies, and other related parties. A good NDA will provide for any necessary disclosures while maintaining an appropriate level of protection over the confidential information.
Duration of protection
NDAs are occasionally “open-ended” so that information remains confidential until it is in the public domain. Usually, it makes more commercial sense to set a hard time limit on the obligation, since almost all confidential information eventually becomes “stale.” It is also sometimes important to set a time limit on the window during which protected confidential information can be exchanged, so that the agreement does not apply to discussions conducted years or decades in the future.
Non-solicitation provisions
An NDA is often a suitable context to prohibit “poaching” of staff that might become known to the other party through the discussion, especially when technical information or commercial trade secrets are involved. Non-solicitation clauses are not present in all NDAs, and they are often not acceptable unless carefully tailored.
Disclaimer of oral agreements
An NDA can be used to avoid disputes over business relationships by including a provision stating that any definitive transaction between the parties will require a written agreement. This can prevent a party from later claiming that an unwritten agreement (such as a partnership or purchase and sale agreement) existed between the parties.
Enforcement in foreign countries
If the other party to the NDA is based in a foreign country, it is important to consider whether the NDA can be enforced against them. The governing law and jurisdiction clauses can be of extreme importance in this case, as a judgment from a New York court under New York law may be easily enforced in New York or Los Angeles but completely unenforceable in Beijing.
Technical safeguards
NDA language is only one way to protect the confidentiality of information. For the most sensitive types of information, there are technical safeguards available to prevent unwanted disclosure, such as physical or virtual “clean rooms” accessible only by certain individuals.