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Form and Type of Agreement
□ Company’s form or vendor’s form
□ Unilateral (one-way) NDA
□ Mutual (two-way) NDA
□ Precise purpose for NDA
□ Definition of “confidential information”
□ Marking requirements
□ Obligation to return and/or destroy
□ Obligations of confidentiality
□ Internal disclosure of information
□ Exceptions to confidentiality
□ Procedure for disclosure for subpoena/court order
□ Opportunity to obtain injunctive relief
□ Notification of potential or actual breach
□ No obligation to disclose
□ No ownership transfer
□ No removal of proprietary notices
□ Protection of intellectual property (IP)
□ Information handling requirements
□ Encryption/other protection for highly sensitive information
□ Residual knowledge
□ Avoid use of NDA as final/ongoing agreement
□ Avoid commencement of services before definitive agreement
□ Receipt of competitor’s information
Nondisclosure agreements (sometimes called confidentiality agreements) (NDAs) are used in several situations and transaction types to protect information exchanged by the parties to a transaction. Most notably, NDAs are used at the inception of a proposed business relationship to ensure that confidential information disclosed by the parties prior to executing a definitive agreement is protected from unauthorized disclosure. If the parties decide to enter into a definitive agreement (for example, a professional services or software licensing agreement) following their initial discussions, the NDA would commonly be replaced by the confidentiality provisions of the final definitive agreement. In the foregoing example, an NDA is used as an interim agreement to ensure initial discussions and information exchanged by the parties during such discussions are protected by written confidentiality obligations.
NDAs are not usually intended to be used on an ongoing basis to cover a broader relationship between the parties. NDAs may be used on an ongoing basis for employees, contractors, and others, who may not require anything more substantial in the way of contractual documentation to govern their relationship with the business, but this is generally not the case. This chapter does not address the unique issues inherent in employment relationships.
While NDAs can come in all shapes and sizes, they are typically either unilateral or mutual. Unilateral NDAs (sometimes referred to as one-way NDAs) protect only the information of one of the parties. Uris type of NDA is used when information will flow in only one direction or when only one of the parties is concerned about protecting its information. Mutual NDAs (sometimes referred to as two-way NDAs) protect the information of both of the parties. Mutual NDAs are used when information will flow in both directions and when both parties are concerned with protecting their information.
In addition to protecting the parties’ confidential information, NDAs are a key means of protecting and maintaining the enforceability of trade secret rights. Disclosure of confidential information without an NDA or similar confidentiality obligations can result in irrevocable loss of trade secret protection.
Of the many types of contract documents one may encounter in technology contracting, by and large, NDAs from vendors and customers are usually very similar, using very similar language. This does not mean that oddities cannot occur, but in most instances the language used in one NDA will be very similar to the language found in another NDA. If you encounter truly broad differences, the party drafting the NDA is either trying to address some unusual aspect of their business or is using a form that is not in step with the industry.
Included below is a summary of the various topics and issues that should be addressed in any NDA. There are several initial considerations in any potential use of an NDA:
■ As an initial issue, your company must decide whether to use its form NDA or that of the other party. In many instances, this is not a significant issue. Most NDAs generally cover the same issues and topics, and the differences between your company’s NDA and the other party’s NDA are frequently trivial or easily resolved through simple revisions. In all cases in which your company will be disclosing highly confidential information or intellectual property (IP), or if unique regulatory issues are involved, the preference is to use your company’s form agreement. In such cases, your company’s NDA will likely (and should) contain specific terms to address issues that are critical to your company and are likely not included in the other party’s form agreement. If you must use the other party’s NDA and you will be disclosing highly confidential information or IP, or there are unique regulatory issues involved, be sure to include the specific terms that are critical to your company in order to protect your company’s information adequately and appropriately.
■ After determining which company’s form NDA will be used, your company must determine whether a unilateral or mutual NDA is appropriate. A business relationship in which both parties will be disclosing confidential information and both parties want to protect information disclosed will require a mutual NDA. However, a unilateral NDA is appropriate if information will flow in only one direction or if only one party is concerned with protecting its information. Never use a unilateral NDA protecting the other party if there is any chance that your company will disclose company confidential information to the other party or otherwise as part of the business relationship.
■ Unilateral NDAs are also useful to set the tone of the discussions. That is, they are commonly used to articulate to the other side that your company does not want their confidential information and that you are unwilling to assume any obligation to protect their information if they nonetheless choose to disclose it.
■ While NDAs are generally straightforward and commonly present few unique issues, they should be given the same level of review as any other legal document.