Whether you are exploring an exciting new partnership, joint-venture opportunity, or seeking funding to grow your company, non-disclosure agreements (NDAs), or confidentiality agreements, are a normal component of many early negotiations. While most NDAs contain boilerplate language, there are issues you should pay attention to and understand prior to signing an NDA. Below we’ve highlighted certain general and high-level concepts and issues to be aware of regarding NDAs.
Who Are Parties to an NDA
First, understanding the difference between a mutual and a unilateral non-disclosure agreement is important. Unilateral NDAs protect confidential information only flowing from one party to the other. While unilateral NDAs are used frequently, especially in fundraising rounds, the exchange of information is often a two-way street. In that case, a mutual NDA is normally recommended, meaning both parties might receive confidential information and each has obligations of confidentiality to the other.
Who is bound by the NDA? Often the party to the NDA itself is a company. If you are negotiating with a company, you should ensure that anyone who receives confidential information is bound by the same confidentiality obligations as the company itself; including employees, officers, contractors, affiliates, or subsidiaries of that company. The NDA should clearly state this and also provide that the company is liable for any breach of the NDA by any of those individuals or entities who received confidential information. This is especially important if you are raising an investment round and speaking with investors or venture capital firms because a lot of these parties consist of separate entities which control different funds.
What is “Confidential Information” in an NDA?
The definition of “Confidential Information” is fairly standard in most non-disclosure agreements. The definition often covers financial, business, and technical information. How confidential information is conveyed or identified is an important consideration.
It is important to consider whether the NDA covers information as confidential regardless of how it is transmitted, for example, written, verbal, electronic, etc. Further, some non-disclosure agreements indicate that any information conveyed must be labeled as confidential either verbally or in writing (e.g. marking the information “Confidential”). This is important because otherwise confidential information might lose protection under the NDA because it is not labeled as such. It might be indicated that information is confidential if an individual could reasonably conclude, based on the information provided, that it should be treated as confidential. This is the most permissive scope of confidential information because whether the information is labeled is not dispositive, rather it is the nature of the information.
Most non-disclosure agreements also contain certain exceptions to what is considered confidential information. For example, information that is generally available to the public, developed independently by a party, or disclosed lawfully to a party by a third party is often not treated as confidential information.
The general approach to confidential information received from another party is to protect such information with the same degree of care as you would use protecting your own confidential information. This is often stated explicitly in an NDA. Alternatively, the NDA might state a different standard, such as you must use a reasonable degree of care to protect confidential information.
What Does “Term” Mean?
Most NDAs provide a section that indicates the “Term” of the agreement. The term is often one or two years after the effective date (the date the agreement is signed). However, non-disclosure agreements are often unclear as to whether a party’s confidentiality obligations also expire upon the termination of the agreement. So the NDA might state a party’s confidentiality obligations survive termination of the agreement, for a set number of years or until the information is no longer confidential. If confidential information includes trade secrets, it’s often advisable to confirm the NDA protects those until they are no longer trade secrets.
Foundry Law Group Is Here to Assist
The attorneys at Foundry Law Group have significant experience reviewing and drafting non-disclosure agreements for our clients. Contact us with any questions about a non-disclosure agreement you are being asked to sign or if you need an NDA for your next venture, we are here to help!