• Non disclosure agreement

How to Write a Non-Disclosure Agreement (NDA)

Many times, during collaborations, confidential information needs to be disclosed by either party (the “disclosing party”), to the other party (the “receiving” party). One of the most common ways to protect that confidential information is through a non-disclosure agreement (NDA), a common legal document signed by both parties, that regulates and guidelines the disclosure process.

Collaborations between companies, individuals and other legal entities are a common phenomenon in the business field; it can be between an investor and a company, employee and employer, two companies, and many more, all made in order to achieve a mutual purpose that justifies the collaboration.

The NDA can be mutual, usually when both parties are disclosing information and want protection. For example, a collaboration between two companies in order to create a mutual product. In this case, the document will be called a MNDA (Mutual Non-Disclosure Agreement). The NDA can also be unilateral, when the information being disclosed belongs to one party – like in the case of an investor and a startup. The NDA will contain the purpose of the disclosure and will obligate the receiving party to use the information only in accordance with that certain purpose.

In this article, I will explain some of the key issues that should be included in an NDA.

Definition of confidential information

As mentioned earlier, a NDA is an agreement that sets the guidelines and the use of confidential information disclosed by one party to the other. However, in order to understand what information the parties are protecting, it is crucial to have a clear, yet comprehensive, definition of “confidential information” – in other words, it is important that both parties agree on what is included in this definition.

Confidential information can be almost any kind of information disclosed, starting with Intellectualconfidential infromation Property (trademarks, trade secrets, inventions, software developments, designs and other proprietary information) and ending with client lists, business methods, marketing material, the NDA itself or even the actual negotiations between the parties. One way of defining the confidential information is by including only information that is expressly marked as confidential (on the document or file itself). Another way is by giving a wide definition, but simultaneously including exceptions, which if apply, exclude the information from being confidential, and therefore the restrictions will not apply. Common exceptions include:

(1) Information that was already publicly known at the time of disclosure or afterwards (without becoming so due to a breach of the NDA by the receiving party);

(2) Information that the receiving party already has possession of before receiving it from the disclosing party, or information that was developed or obtained independently by the receiving party without using the disclosed information.

(3) Information that was disclosed to the receiving party by a third party, who had the lawful right to disclose such information (that is to say someone who was not in breach of the NDA when they provided the information);

(4) The applicable law or a governmental authority requires that the receiving party disclose the confidential information. In such event, the receiving party must disclose the confidential information although often the NDA will state that the receiving party should first notify the disclosing party so that it can try prevent the disclosure. For example, if Microsoft discloses something to Apple and the FBI then demands that Apple disclose the information, Microsoft will probably attempt to prevent such disclosure by requesting a court order. 

Should a claim of breach arise by the disclosing party, the receiving party will be the one who has to prove that one of the exceptions applied.  

Often, people ask why would the disclosing party want to include these exceptions. The short answer is that if they are not, then the agreement would be very one sided and in most likelihood, the other side will not sign it.

Mutual or unilateral

It is important to understand whether you are dealing with a NDA (unilateral – only one side is sharing information) or a MNDA (both parties are sharing information)  in order to understand the balance of power between the parties and create a suitable agreement.

For example, a NDA between an employee and his/her employer will probably be unilateral and will protect mostly the employer. On the flip side, when two companies create a new product together, they will use a MNDA that will usually protect both parties equally, in order to keep the collaboration efficient and regulated. 

Disclaimer

The main goal of a NDA is to define and protect the confidential information of the disclosing party. However, the disclosing party does not want to be liable (responsible) for any decisions or actions that the receiving party might make based on the information. Therefore, the disclosing party should always add a provision called the “Disclaimer” which, simply put, states that the disclosing party is not accountable for the quality or accuracy of the confidential information being disclosed and will not be liable for any damages caused to the receiving party due to actions done based on the disclosed information. It is also advisable to stress that the NDA regulates only the confidentiality obligations of the parties and nothing else.

Termination of the Agreement

Like every legal contract, a NDA needs to have a start and end date. Termination can be by prior notice following written notice (the less preferred option) or after a pre-defined period (usually 1-Termination of the Agreement3 years after the collaboration has ended).

One of the special things about a NDA is that often it will continue to be confidentially binding after the end date or its termination. The reason for extending the confidentiality obligations even after the collaboration has ended is due to the fact that in most cases the confidential information remains confidential long after the collaboration period has ended and if a company knew that at the end of a (maybe unsuccessful) negotiation the information would no longer be confidential, no companies would enter into such collaborations.

Another provision that is common in NDAs is one in which the receiving party is required to return all of the confidential material once the agreement period has ended. This includes destroying the material, and providing proof of such destruction.

Conclusions

A non-disclosure agreement (NDA) can be very important when collaborating with another party and is a useful tool to enable business transactions whilst simultaneously protecting (as best possible) your confidential information.

But what if someone doesn’t want to sign an NDA? This is often a question lawyers get asked, and is often, although not exclusively, the case with venture capitals and private investors. The reason being that they get hundreds or thousands of pitches, and are concerned of being limited. Also, it is very time consuming to negotiate each NDA when dealing with so many. The simple solution in this case is to record the conversation (just remember to mention, naturally without it sounding suspicious, who’s in the room, and what you’re disclosing).

Perhaps the final word of advice should be this: before drafting your NDA, or using one from your lawyer or from the Internet (be sure it’s a good one and that you have the legal right to use it), think about what is special in your information, what is confidential about it and for how long it should be protected. Think about the risks regarding the disclosure of your information and the reasonability that it will materialize, and about the opportunities arising from the collaboration. 

The information presented is not legal advice, is not to be acted on as such, may not be current and is subject to change without notice.

About the Author:

Karin Maimon
Law & Business (Accounting) student at the IDC Herzliya. Dreams of becoming an owner of a VC company that will connect between different markets around the world, focusing on innovation and technology.
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