By Andy Harris
A non-disclosure agreement (NDA), also known as a confidentiality agreement (CA) or confidential disclosure agreement (CDA), is a contract used to specify what is confidential information for the purpose of negotiations between two parties, and for what purpose such confidential information may be used. There are many forms of NDA available online, and although some seem relatively straightforward it is worth noting the points below to avoid potential pitfalls.
NDAs are commonly used by parties when they consider entering into a further business relationship, where one party needs access to the other’s confidential information to evaluate a business proposition. NDAs can be unilateral, where only one party receives confidential information and accepts the obligation of confidentiality, or mutual, where both parties are disclosing confidential information.
Some key points to bear in mind are:
1. Be clear what information is to be considered confidential. I have seen examples where all information passing between parties will fall within the definition of confidential information, which is unlikely to be what parties intended. Equally, some NDAs contain too narrow a definition, with the result that genuinely confidential information disclosed between the parties may not be caught.
Another issue arises when NDAs state that confidential must be labelled as confidential. That is fine as long as you remember to label it! A safer approach would be to include wording which makes clear that any information not labelled as confidential should still be treated as confidential if it is clear from the circumstances that it should be.
2. Be clear what the purpose of the NDA is. This is normally described at the ‘Permitted Purpose’ being the precise purpose for which the confidential information is being disclosed. This can be limited to a single defined meeting, or be much broader in scope, covering any commercial discussions between parties. If you are disclosing your confidential information you want to ensure the purpose is as clear and as limited as possible. You don’t want to give another party greater rights to use your confidential information than they actually need.
3. Be clear who gets to see the confidential information. A party receiving confidential information should only be entitled to disclose it to employees who genuinely need to see it in relation to the Permitted Purpose, or to other agreed third parties (which should include professional advisors).
4. Be clear on time limits. Most confidential information will not remain commercially sensitive or confidential for long periods of time. So you should avoid imposing long periods of confidentiality (e.g. 10 years plus) unless you feel it is justified. Otherwise the clause might not be enforceable if challenged.
Although NDAs are very standard in relation to business transactions and are relatively simple documents compared to many other type of commercial contract, it is still easy to be tripped up by them. Accordingly every NDA should be assessed carefully to make sure the issues identified above are avoided and to ensure it reflects the particular circumstances for which it is being provided .