NDAs (“non-disclosure” and “confidentiality” agreements)
are documents commonly used to prevent unauthorized use of
business information.
Disclosing important information to prospective customers,
suppliers or investors is a common business dilemma, because:
- The “disclosing party” fears being “ripped
off” - that the information will be used without compensation.
- The “receiving party” fears
that it may have similar work underway and does not want
to be accused of pirating someone's ideas.
1. Who are the parties?
The agreement should clearly identify the name, entity, address,
and jurisdiction of the parties.
2. Is the agreement mutual?
Does the agreement cover both parties or does it only cover
disclosures by one party?
3. What is the purpose of the agreement?
The agreement should specify the purpose of the disclosure.
Is it background information for the purpose of developing
a business relationship? Is it part of another agreement?
4. What information is covered?
Confidential information is usually broadly defined to include “any
and all information … whether oral or in writing.” It
is important that information be marked “confidential” and
that oral disclosures are reduced to writing and marked confidential
in a timely manner.
5. What information is excluded?
NDAs exclude information that was already known prior to the
date of the agreement if documented in written records; in
the public domain; rightfully received from another source;
or developed independent of this disclosure as evidenced
by written records.
6. What safeguards are required?
The agreement should specify procedures for protecting the
confidential information. It should state under what circumstances
it can be disclosed to employees or other parties.
7. What is the term of the agreement?
How long is the agreement effective? Is it one year? Three
years? Or, is it of indefinite duration?
8. What are the termination provisions?
How is the agreement terminated? How is the confidential information
handled in the event of termination? Is it destroyed? Returned?
How will it be accounted for?
9. What does it say about intellectual property rights?
Usually, NDAs specify that neither party acquires any intellectual
property rights under the agreement, other than the limited
rights to carry out the specified purpose. The agreement
should say, “No right or license, express or implied,
is granted in connection with any Confidential Information
disclosed pursuant to this Agreement” and “No
commercial use is allowed without prior written consent.”
10. Does it address similar work in progress?
Sometimes NDAs say that each party acknowledges that the other
is developing and acquiring similar technology and that “nothing
in this agreement precludes the receiving party from developing
similar technology without obligation to the discloser provided
it does not use the discloser’s confidential information.”
11. Does it address derivative work?
Sometimes NDAs say that in the event that either party develops
new information or data as a result of the work carried out, “that
party shall have the right to use or publish that new information,
with the prior written consent of the other party.”
12. Is the existence of the agreement confidential?
Sometimes the agreement specifies that neither party shall
make any public announcement or disclosure of this agreement
without the prior written consent of the other party.
13. Are there any warranties?
Usually a NDA says that the disclosing party is authorized
to make the disclosure, but that there are no other warranties.
14. What happens in the event of breach?
NDAs frequently call for “injunctive relief” in
addition to any and all remedies at law. This means that a
party can seek a court order prohibiting use of its information
in violation of the agreement. Unfortunately, for most business
disputes, going to court is not an effective remedy because
it is costly and the outcome is unpredictable. For business
disputes, mediation and arbitration before a neutral party
experienced in business matters is a faster and more cost effective
way to resolve disputes.
15. Governing laws and jurisdiction?
If both parties are located in the same state, the choice of
law and the location for the dispute resolution proceeding
is easy. Frequently, however, the parties are located in
difference states or countries and hence it can be contentious
which law applies. To prevent one party from having the “home
court advantage,” I recommend a “mutually inconvenient” location
that is business friendly such as Delaware or the Netherlands.
In conclusion, how confidential information is disclosed is
important. Sufficient information needs to be disclosed to
persuade the other party to proceed. Disclosing too much information
without protection is risky. Disclosing too little information
precludes the business relationship from progressing. Used
effectively, NDAs protect information and facilitate business
transactions. Used ineffectively, NDAs can confuse ownership
rights and restrict business opportunities.
Jean D. Sifleet, Esq., CPA
Business Attorney
120 South Meadow Road
Clinton, MA 01510 USA
t. 978-368-6104
f. 978-368-6105
c.978-618-2162
email jean@smartfast.com
P.S. While this checklist can help you
evaluate the terms of a NDA, it is not a substitute for legal
advice for your specific situation. My office provides assistance
with business contracts, including confidentiality, non-disclosure
and employee agreements. If you’d like to discuss steps
to protect your confidential information, please give me
a call.
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