In business, there are numerous instances in which you may want to share confidential information with another party. One common way to protect the secrecy of confidential information given to another party is through the use of a Non-Disclosure Agreement, which is sometimes also referred to as a “Confidentiality Agreement” or “NDA.”
When to execute a NDA:
- Presenting an invention or business idea to a potential partner, investor, or distributor;
- Sharing financial, marketing, and other information with a prospective buyer of your business;
- Showing a new product or technology to a prospective buyer or licensee;
- Receiving services from a company or individual who may have access to some sensitive information in providing those services; and
- Allowing employees access to confidential and proprietary information of your business during the course of their job.
Issues to consider when entering into a NDA:
Before entering into an NDA, each party should examine the terms to ensure that an agreement makes sense for the party’s business. Each party would want the agreement to adequately protect their own information and interest, while not going so far as to subject the party to confidentiality procedures that can create issues down the road.
Duration of the confidentiality obligation:
Some NDAs have a nondisclosure obligation that lasts forever. Others have a particular validity, such as 2 to 3 years. A long term NDA is useful if the disclosure involves proprietary manufacturing processes, chemical compositions, or similar information. However, if the disclosure includes information that would ultimately become public anyway — such as design details for a soon-to-be-sold product, or information that will be published in a patent application — then a term of 2 or 3 years is more appropriate.
Consistency with corporate procedures:
It is essential that the terms of the agreement are reviewed to ensure that it does not impose obligations with which any or both the executing parties cannot comply. Sometimes, an NDA woul require that all individuals who receive the information sign a confidentiality agreement which may not be possible. It is advisable to consult a specialist before agreement and execution on such terms are done.
Purpose / Non-use clause
It is standard for a NDA to prohibit the recipient from disclosing the information. However, the big question is whether such information also restrict the recipient from internally using the information for its own benefit? Does it clearly limit the purpose for which the recipient can use the information? “Purpose” clauses are often filled in after all other terms are negotiated. Take care so that the purpose clause is as carefully drafted as any other clause.