Overview

A Non-Disclosure Agreement (NDA) or Confidentiality Agreement is a contract defining the conditions upon which individuals and businesses agree to share confidential material, knowledge, or information with each other, and protect the information from disclosure to others.

Guidance

Key Considerations

  • Who is disclosing information?
    • One party (one-way disclosure)
    • Both parties (mutual disclosure)
  • What is nature of the information disclosed and its degree of sensitivity?
    • General business information (e.g. strategies, customers)
    • Financial business information
    • Technical business information
    • Personal information (inc. health or credit information)
    • Strategic and government information
  • How is the information disclosed?
    • Discloser controlled facility
    • Discloser presentation
    • Discloser delivery of information to receiving party

Checklist

(+ = standard)

1. Purpose
What is the reason for the exchange of information?
+ Employment
+ Business Opportunity
+ Acquisition
2. Term
what is the duration of the agreement?
+ Trade Secrets Exception
+
 Fixed
-  Open-ended (until the information becomes public or is returned)
-  Contingent (until a superseding agreement is effective)
3. Scope
What is included?
+ Broad (all non-public)
-  Narrow (date defined)
-  Marked
-  Specific information (business, financial, technical)
What is excluded?
+ Publicly available
+ Already known
+ Third-party source
+ Independently developed
-  Released
-  Older
4. Obligations
what must the receiving party do?

+  Use information solely for purpose of disclosure
+  Keep information confidential (standard of care: reasonable, adequate, specific)
+  Protect information from loss or unauthorized access
-   Notify disclosing party of unauthorized disclosure
+  Return or destroy  information on request or termination
5. Restrictions
what can’t the receiving party do?

-  Disclose the information to third-parties
-  Copy or record information
-
  Reverse engineer information
-  Solicit staff (can’t hire disclosing party employees)
-  Solicit other opportunities (can’t seek other buyers)
6. Permissions
what can the receiving party do?

+ Permitted disclosure to employees, etc.
+ Permitted disclosure if compelled
7. Assurances
what assurances are given by the disclosing party?
+ None: information is disclosed “as-is”
-  Accurate: information is accurate and complete
what assurances are given by the receiving party?
+ Acknowledge that the disclosing party owns the information
-  Acknowledge that the disclosing party has no obligation to enter into any other agreement
-  Acknowledge that the disclosing party can independently develop ideas based on the information
8. Remedies
what can the disclosing party do if the receiving party doesn’t comply with the agreement?

+ Terminate the agreement (and demand return of the information)
-  Enforce compliance (injunction)
-  Seek protection for any losses or claims from the receiving party (indemnity, liquidated damages)

Negotiation Guide

1. Key Deal Points

What is the purpose of the disclosure?

Purpose or Exchange of Information. Define the intended purpose for which the NDA is required. This may include a specific topic, project, or scope description or include a general description. Confirm that this clause limits the use of the confidential information to that contemplated (e.g., evaluation of the specific transaction) and not for any other purpose.

What is included in the scope of Confidential Information?

Confidential Information Definition. The scope of “confidential information” may be defined broadly, narrowly, or by reference to specific information. In general, broad definitions favor disclosers, while narrow definitions favor recipients.

Markings. The scope of confidential information may be further defined by requiring a marking, such as the words “confidential,” “restricted,” or “proprietary.” A requirement of marking favors recipients, while a statement that making is not required favors disclosers.

What is excluded from the scope of Confidential Information?

Non-Confidential Information. The Non-Confidential Information or Excluded Information clause defines what is excluded from the definition of confidential information. Such exclusions favor the receiving party.

What obligations are imposed? What must the recipient do?

The Confidentiality Obligations or Protection of Information clause in a non-disclosure agreement details the obligations and forbearances required on the part of a party receiving confidential information. The clause may contain three elements: the obligation to keep confidences, to use the information to others, and not disclose the information to any third parties. However, the last element is covered by the first and not needed.

What can the receiving party do?

The Permitted Disclosure clause details the (a) class of individuals to whom confidential information may be disclosed, (b) the requirements for disclosure, and (c) liability for disclosure. In general, the recipient will favor broader permissions to disclose, while the discloser will seek to narrow the class of individuals who are permitted access and will further seek to apply the terms of the agreement to all such individuals.

The Required Disclosure or Mandatory Disclosure clause details the circumstances under which a party may disclose confidential information when required to do so by law, judicial body or government agency. The provision contains three elements: (a) notice; (b) cooperation; and (c) limited disclosure.

What is the term of the disclosure and obligations?

Disclosure Period. Define and limit the period during which protected disclosures can be made. You may want to set a specific event as a parameter. One common example might include information provided pursuant to a specific Request for Proposal. Alternatively, you may want to specify a date certain—either a fixed date in the future (e.g., December 31, 2021) or as a time period from the date of NDA execution (e.g. one year from date of execution).

Confidentiality Period. The Confidentiality period may be either fixed (for a stated period of time) or open-ended (until the information becomes public). In general, longer or open-ended terms favor disclosers and may be appropriate for highly sensitive information (such as personal information), while shorter fixed terms may be appropriate for general business information.

2. Key Legal Terms

What Statements and Acknowledgments are made by the Parties?

Warranties. The Warranties clause of a Non-Disclosure Agreement (NDA) determines whether the parties make any guarantees (i.e. 'warranties') regarding the accuracy or completeness of any confidential information. Typically, the clause disclaimers any warranties and states that the information is provided "as-is."

Ownership. The Ownership of Confidential Information protects the discloser. It states that all proprietary rights are retained by the disclosing party and that the disclosure of information does not convey any right or license to use the information other than for the stated purpose.

An Independent Development clause may be used to protect either party. It stipulates that the parties may be developing products independent of other each other and they make no representations that the development will not compete with the other party.

What other obligations and protections?

Protection of Information. The Confidentiality Standard of Care or Protection of Information clause defines the level of protection that the receiving party must use to protect the disclosed confidential information. Typically, the agreement requires the recipient to treat the disclosed information in the same manner as it treats its own confidential information, but not be less than "reasonable care." A few agreements purport to require a higher standard, such as "strict confidence" or the "highest standard of care." However, such higher standards may not be attainable or practicable.

The Notification of Disclosure clause requires a party receiving confidential information to notify the disclosing party in the event of any unauthorized use or disclosure.

Return or Destruction of Materials. Confirm language is included providing for the return or destruction (or certification of destruction) by the recipient of any written confidential information provided upon NDA termination. Consider ensuring the recipient’s right to retain a reasonable number of copies for archival/evidentiary purposes.

What Rights and Remedies in the Event of Breach by a Party or Claims by Third Parties?

Termination. The agreement may optionally contain the right to terminate the agreement for breach or upon notice. Termination upon may notice may be used to stop and further disclosures from the date of the notice.

Breach and Remedies. The parties have a common law right to damages in the event of a breach of the agreement. The disclosing party may seek further protection by including a clause permitting injunctive relief to prevent any actual or threatened disclosures.

Indemnification. An indemnification term may be included to serve as a warning. However, it may restrict the disclosing party’s right to other remedies such as equitable relief.

Governing Law. The Governing Law or Choice of Law clause specifies that the laws of a mutually agreed upon jurisdiction will govern the interpretation and enforcement of the terms of the contract. Controlling the governing law is an important objective for the parties because differences in local laws may control the outcome of a dispute.

Resources

See the following articles for more information on all aspects of NDAs:

Kristin Hiibner, Sheldon Mak Rose & Anderson, Understanding, Drafting and Using Non-Disclosure Agreements (accessed June 13, 2016).

Jere M. Webb, Stoel Rives LLP, A Practitioner’s Guide to Confidentiality Agreements (accessed June 12, 2016).

Ken Adams, What The Heck Does “Best Efforts” Mean? (accessed June 16, 2016).

Parker Poe Adams & Bernstein LLP, Time Limits in Confidentiality Agreements: Traps for the Unwary (accessed June 14, 2016).

1. Overview

A Non-Disclosure Agreement (NDA) or Confidentiality Agreement is a contract defining the conditions upon which individuals and businesses agree to share confidential material, knowledge, or information with each other, and protect the information from disclosure to others.

2. Discussion

Key Considerations

  • Who is disclosing information?
    • One party (one-way disclosure)
    • Both parties (mutual disclosure)
  • What is nature of the information disclosed and its degree of sensitivity?
    • General business information (e.g. strategies, customers)
    • Financial business information
    • Technical business information
    • Personal information (inc. health or credit information)
    • Strategic and government information
  • How is the information disclosed?
    • Discloser controlled facility
    • Discloser presentation
    • Discloser delivery of information to receiving party

Checklist

(+ = standard)

1. Purpose
What is the reason for the exchange of information?
+ Employment
+ Business Opportunity
+ Acquisition
2. Term
what is the duration of the agreement?
+ Trade Secrets Exception
+
 Fixed
-  Open-ended (until the information becomes public or is returned)
-  Contingent (until a superseding agreement is effective)
3. Scope
What is included?
+ Broad (all non-public)
-  Narrow (date defined)
-  Marked
-  Specific information (business, financial, technical)
What is excluded?
+ Publicly available
+ Already known
+ Third-party source
+ Independently developed
-  Released
-  Older
4. Obligations
what must the receiving party do?

+  Use information solely for purpose of disclosure
+  Keep information confidential (standard of care: reasonable, adequate, specific)
+  Protect information from loss or unauthorized access
-   Notify disclosing party of unauthorized disclosure
+  Return or destroy  information on request or termination
5. Restrictions
what can’t the receiving party do?

-  Disclose the information to third-parties
-  Copy or record information
-
  Reverse engineer information
-  Solicit staff (can’t hire disclosing party employees)
-  Solicit other opportunities (can’t seek other buyers)
6. Permissions
what can the receiving party do?

+ Permitted disclosure to employees, etc.
+ Permitted disclosure if compelled
7. Assurances
what assurances are given by the disclosing party?
+ None: information is disclosed “as-is”
-  Accurate: information is accurate and complete
what assurances are given by the receiving party?
+ Acknowledge that the disclosing party owns the information
-  Acknowledge that the disclosing party has no obligation to enter into any other agreement
-  Acknowledge that the disclosing party can independently develop ideas based on the information
8. Remedies
what can the disclosing party do if the receiving party doesn’t comply with the agreement?

+ Terminate the agreement (and demand return of the information)
-  Enforce compliance (injunction)
-  Seek protection for any losses or claims from the receiving party (indemnity, liquidated damages)

Negotiation Guide

1. Key Deal Points

What is the purpose of the disclosure?

Purpose or Exchange of Information. Define the intended purpose for which the NDA is required. This may include a specific topic, project, or scope description or include a general description. Confirm that this clause limits the use of the confidential information to that contemplated (e.g., evaluation of the specific transaction) and not for any other purpose.

What is included in the scope of Confidential Information?

Confidential Information Definition. The scope of “confidential information” may be defined broadly, narrowly, or by reference to specific information. In general, broad definitions favor disclosers, while narrow definitions favor recipients.

Markings. The scope of confidential information may be further defined by requiring a marking, such as the words “confidential,” “restricted,” or “proprietary.” A requirement of marking favors recipients, while a statement that making is not required favors disclosers.

What is excluded from the scope of Confidential Information?

Non-Confidential Information. The Non-Confidential Information or Excluded Information clause defines what is excluded from the definition of confidential information. Such exclusions favor the receiving party.

What obligations are imposed? What must the recipient do?

The Confidentiality Obligations or Protection of Information clause in a non-disclosure agreement details the obligations and forbearances required on the part of a party receiving confidential information. The clause may contain three elements: the obligation to keep confidences, to use the information to others, and not disclose the information to any third parties. However, the last element is covered by the first and not needed.

What can the receiving party do?

The Permitted Disclosure clause details the (a) class of individuals to whom confidential information may be disclosed, (b) the requirements for disclosure, and (c) liability for disclosure. In general, the recipient will favor broader permissions to disclose, while the discloser will seek to narrow the class of individuals who are permitted access and will further seek to apply the terms of the agreement to all such individuals.

The Required Disclosure or Mandatory Disclosure clause details the circumstances under which a party may disclose confidential information when required to do so by law, judicial body or government agency. The provision contains three elements: (a) notice; (b) cooperation; and (c) limited disclosure.

What is the term of the disclosure and obligations?

Disclosure Period. Define and limit the period during which protected disclosures can be made. You may want to set a specific event as a parameter. One common example might include information provided pursuant to a specific Request for Proposal. Alternatively, you may want to specify a date certain—either a fixed date in the future (e.g., December 31, 2021) or as a time period from the date of NDA execution (e.g. one year from date of execution).

Confidentiality Period. The Confidentiality period may be either fixed (for a stated period of time) or open-ended (until the information becomes public). In general, longer or open-ended terms favor disclosers and may be appropriate for highly sensitive information (such as personal information), while shorter fixed terms may be appropriate for general business information.

2. Key Legal Terms

What Statements and Acknowledgments are made by the Parties?

Warranties. The Warranties clause of a Non-Disclosure Agreement (NDA) determines whether the parties make any guarantees (i.e. 'warranties') regarding the accuracy or completeness of any confidential information. Typically, the clause disclaimers any warranties and states that the information is provided "as-is."

Ownership. The Ownership of Confidential Information protects the discloser. It states that all proprietary rights are retained by the disclosing party and that the disclosure of information does not convey any right or license to use the information other than for the stated purpose.

An Independent Development clause may be used to protect either party. It stipulates that the parties may be developing products independent of other each other and they make no representations that the development will not compete with the other party.

What other obligations and protections?

Protection of Information. The Confidentiality Standard of Care or Protection of Information clause defines the level of protection that the receiving party must use to protect the disclosed confidential information. Typically, the agreement requires the recipient to treat the disclosed information in the same manner as it treats its own confidential information, but not be less than "reasonable care." A few agreements purport to require a higher standard, such as "strict confidence" or the "highest standard of care." However, such higher standards may not be attainable or practicable.

The Notification of Disclosure clause requires a party receiving confidential information to notify the disclosing party in the event of any unauthorized use or disclosure.

Return or Destruction of Materials. Confirm language is included providing for the return or destruction (or certification of destruction) by the recipient of any written confidential information provided upon NDA termination. Consider ensuring the recipient’s right to retain a reasonable number of copies for archival/evidentiary purposes.

What Rights and Remedies in the Event of Breach by a Party or Claims by Third Parties?

Termination. The agreement may optionally contain the right to terminate the agreement for breach or upon notice. Termination upon may notice may be used to stop and further disclosures from the date of the notice.

Breach and Remedies. The parties have a common law right to damages in the event of a breach of the agreement. The disclosing party may seek further protection by including a clause permitting injunctive relief to prevent any actual or threatened disclosures.

Indemnification. An indemnification term may be included to serve as a warning. However, it may restrict the disclosing party’s right to other remedies such as equitable relief.

Governing Law. The Governing Law or Choice of Law clause specifies that the laws of a mutually agreed upon jurisdiction will govern the interpretation and enforcement of the terms of the contract. Controlling the governing law is an important objective for the parties because differences in local laws may control the outcome of a dispute.

Resources

See the following articles for more information on all aspects of NDAs:

Kristin Hiibner, Sheldon Mak Rose & Anderson, Understanding, Drafting and Using Non-Disclosure Agreements (accessed June 13, 2016).

Jere M. Webb, Stoel Rives LLP, A Practitioner’s Guide to Confidentiality Agreements (accessed June 12, 2016).

Ken Adams, What The Heck Does “Best Efforts” Mean? (accessed June 16, 2016).

Parker Poe Adams & Bernstein LLP, Time Limits in Confidentiality Agreements: Traps for the Unwary (accessed June 14, 2016).