What is a Non-Disclosure Agreement?
A Non-Disclosure Agreement or NDA (and sometimes it’s labeled as a Confidentiality Agreement, Secrecy Agreement, Confidential Disclosure Agreement or similar) is an agreement to maintain in confidence and not disclose to a third party or use for any purpose other than as specified (typically a contemplated transaction of one sort or another), information received or learned from the other party(ies).
Should a Non-Disclosure Agreement be unilateral of bilateral?
There are situations where a NDA covering confidential information of only one party makes sense, for instance in connection with a bidding process for sale of a company, where initially only the party evaluating the acquisition will be receiving confidential information. More often in the ordinary course of business it is the case that both sides are or may be disclosing information each considers confidential or proprietary, and so a reciprocal, or mutual NDA makes sense.
Why sign a Non-Disclosure Agreement?
To protect information that is considered by the disclosing party to be valuable or proprietary. For ordinary course of business dealings (e.g. sale and purchase discussions) and in larger organizations, it often is part of internal processes and/or controls for conducting business. In other cases, such as more significant transactions (e.g. M&A), it is a requirement to participate. Consideration should always be given to scope of the discussion, its subject matter and whether a confidentiality agreement is necessary for the discussion, insofar as it is a contract and so imposes obligations on the parties. For example, in a routine sales discussion for existing products it may or may not be indicated but where that same sales discussion will include R&D or product development matters then an NDA should be obtained.
What types of information are protected by a Non-Disclosure Agreement?
Generally speaking, any information that is not known to the public. Proprietary formulations or technological information, customer identities, new product ideas, business plans and financial information all would be examples. Most NDA’s will contain definitional language as to what constitutes “Confidential Information” and almost always contain exceptions, such as information that is already in the possession of the receiving party, independently developed information, and information in the public domain.
When visiting customer or supplier facilities, should you sign logs or other documentation containing secrecy provisions? This is to be anticipated and avoided. Language in such instruments is often one sided and may even seek to bind an employee personally. Before any such visit, you should ask if such a log or similar containing confidentiality obligations will need to be signed and if so, obtain a copy and send it to counsel for review.
How long does a Non-Disclosure Agreement remain in effect?
For as long as the parties have agreed that it should. Terms of 1-5 years are common, typically with an extension of 1-5 years after expiration or termination to keep the “Confidential Information” (again as defined) confidential per the terms of the contract.
Key Takeaways
While commonplace and a fairly straightforward document, a Non-Disclosure Agreement imposes legal obligations upon the parties. It should be reviewed by counsel, who can tailor the legal instrument to the situation for the client’s benefit and help the client anticipate relevant legal issues for the larger transaction.