THE CONFIDENTIALITY AGREEMENT (or NDA) – GENERAL CONSIDERATIONS
There are many instances during the course of business where one party (the “Discloser”) is required to disclose confidential information to another (the “Disclosee”). Examples of where non disclosure agreements (“NDAs”) would be required include, without limitation, employment agreements, share or asset purchase agreements, venture financing agreements, licensing agreements, collaboration agreements, joint venture agreements, and where merited, stand alone agreements. An NDA needs to be carefully drafted, and not regarded as a mere boilerplate. Each party has its own interests, which are almost always in direct conflict with the interests of the other. This article will explore certain major considerations involved in negotiating and drafting an effective NDA.
NDA’s are generally drafted to protect a wide variety of confidential information, and great care must be taken to properly define confidential information. Of equal importance, it should also except the following from information within the definition of confidential information: information in the public domain, information already known to the Disclosee and information which enters the public domain through no fault of the Disclosee. It should also permit the disclosure of confidential information required to be disclosed under the law (the precise extent of such disclosure to be subject to negotiation).
From the perspective of the Discloser, a well drafted NDA would permit the Discloser to claim certain information as proprietary even if the information does not otherwise satisfy the definition of confidential information. An example of this would be proprietary information disclosed orally.
The NDA should strictly limit to the intended use of the confidential information, and state that the confidential information shall be used for no other purpose. It should also ensure, to the extent possible, that the confidential information remains in the exclusive possession and control of the Disclosee. The Discloser would always negotiate to have the NDA specifically state that the Disclosee admits that improper use or disclosure of Confidential Information would cause irreparable harm.
While it is standard for the Disclosee’s duties of confidentiality to survive the termination of the NDA for some period, it is in the interest of the Discloser to ensure that confidential information disclosed remain confidential for as long as possible, and in the interests of the Disclosee to limit to the greatest extent the duration of the obligation not to disclose. There is a limitation at law as to how long, and as to how wide, the duty not to disclose extends: the duty of confidentiality must be reasonable in time and space. Thus, the circumstances of each situation will govern the extent to which a duty of confidentiality may extend.
The Discloser should require the NDA to provide for the immediate return or destruction of the confidential information upon demand, or expiration or earlier termination of the agreement. There may be occasions where the Disclosee may seek to retain an archival copy of the confidential information to have a record of what was disclosed in the event of a later dispute. In such event, the NDA may allow retention of a single archival copy, but should require that the archival copy is retained under the control of a trustworthy third party.
An NDA should expressly state that nothing therein shall be construed as granting any rights under any intellectual property right, and that any rights in or to the confidential information be limited to the use of the confidential information as specified in the NDA.
While there are several other clauses that may be negotiated or otherwise relevant with respect to an NDA, the issues discussed above represent the salient points which need to be considered when drafting an NDA.
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By Adam Wiseberg
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