Creating a Non-Disclosure Agreement
If you serve corporate clients, a non-disclosure agreement (NDA), also commonly referred to as a confidentiality agreement, is often the first step in your business relationship.
NDAs are used to protect proprietary information, such as financial statements, new products, details of marketing campaigns, and information regarding distinctive operating procedures.
In addition to your clients requiring that you sign their NDAs, if you’re hiring employees or contractors or disclosing sensitive information to a potential collaborator, you need your own NDA, in writing and signed by both parties. By using an NDA, you keep your secret sauce…secret.
Key Provisions
Although NDAs can vary considerably, here are a few key provisions that you can expect to find in most. You may find yourself under pressure from your clients to sign an NDA quickly so that the business discussions can proceed. The closer your NDA template is to these standards, the easier it will be to get to signature.
1. Definition of “Confidential Information”
The critical first step is defining what information will be protected under the agreement. In many cases, NDAs apply not only to the information given to or accessed by the receiving party, but also to all notes, analyses, materials, and summaries prepared by the receiving party that are based upon such confidential information. Ultimately, the NDA’s scope of protection will depend on each party’s relative negotiating power and which party is the primary disclosing party.
2. Exclusions from the Confidential Information Definition
There are always exclusions to the definition of Confidential Information. Typically excluded from protection is any information that (i) is available to the general public through no fault of the receiving party, (ii) is obtained by the receiving party on a non-confidential basis from a third party not bound by confidentiality obligations of its own with respect to such information, (iii) is either already in the receiving party’s possession prior to its disclosure by disclosing party, or (iv) is independently developed by the receiving party without reference to or use of the disclosing party’s Confidential Information.
3. Scope of Permitted Use
It is essential to make explicit the receiving party’s obligations with respect to the treatment, protection and utilization of the confidential information. Specifically, the NDA should detail how the receiving party may use the protected information, as well as with whom it can share such information (both inside and outside of the receiving party’s organization).
4. Return of Confidential Information
Always require that the receiving party return the disclosing party’s Confidential Information upon the disclosing party’s request at any time, whether during the term of the agreement or after.
5. Period of Protection
The NDA should clearly state the term during which the Confidential Information is subject to the protections and restrictions. Although some NDAs continue in perpetuity, most typical is a term of one (1) year, but with the obligation to keep certain information confidential lasting for 3 to 5 years. An exception is that bona fide trade secrets (see here for the difference between trade secrets and confidential information) are typically protected for so long as they are covered by trade secret protection.
6. No Transfer of Ownership.
If not already in there, because too often it is not, add a clause to clarify that disclosure of confidential information does not transfer or grant any rights in or to such information to the receiving party. This clause averts any claim by the receiving party that they received an implicit license or right to use the disclosing party’s information for any purposes outside the scope of the NDA.
If you don’t have your own NDA (or aren’t familiar with them), get your copy of my favorite mutual NDA template. And it is fully annotated, so you understand each provision. You can get it here.