Contracts

Here’s What Makes a Good NDA

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When you bring in other people to help you with different aspects of your business, you may need to entrust them with certain proprietary information or trade secrets of your company so they can do their job effectively. In these cases, a good non-disclosure agreement (NDA) can protect this information from being leaked, shared, or improperly exploited by others. That said, not all NDAs are created equal, and simply using a “boilerplate” NDA may not be strong enough to protect your business if it doesn’t cover all the bases. To ensure your non-disclosure agreement truly gives you the legal protection you’re looking for, make sure it has all of the following key elements in place.

 

A Clear Identification of All Parties Covered By the NDA

 

The first section of your NDA should specifically state that the agreement is between your company (the disclosing party) and the party you’re entrusting with confidential information (the recipient). That may seem obvious enough, and if you’re only bringing one person into the NDA (e.g., an employee), this should be enough to cover you. But if you’re contracting with a third party, an agent, or an affiliate company where multiple people may have access to your company information, this process gets a little more complicated. Make sure your NDA is as specific as possible in naming all parties and sub-parties to be included in the agreement, including any additional individuals or companies that need to protect your company secrets.

 

Clear Parameters of Confidential Information

 

What constitutes “confidential information” in your agreement? Is it all information, or just information deemed proprietary? Is it just intellectual property, or will you be sharing other trade secrets? Is it only information that is earmarked “confidential?” Does the confidentiality agreement cover both oral and written communications? If you are not specific as to what types of information need to be held in confidence, it opens the door to legal loopholes and weakens your protection. Make sure your NDA is crystal clear in its definition of confidential information so there is no confusion and the boundaries of confidentiality are clearly defined for the other party.

 

The Recipient’s Responsibility in Handling Confidential Information

 

In this section, you’ll outline exactly what the recipient can and cannot do with company secrets to which they will have access. Is it just a matter of not sharing the information with others, or do you have specific security requirements for safeguarding data? Are they allowed to divulge certain information to others on their team on a need-to-know basis, or is the information kept in strictest confidence? Most importantly, how are they permitted to use the information you provide?

 

However you spell out these parameters, make sure you cover at least these two bases to ensure maximum protection:

 

  1. Specify how you want the information to be protected and who it can and cannot be shared with; and
  2. Specify that the recipient cannot use the information for their own purposes. (This is an important differentiation because someone could technically keep your company secrets while also using that information to compete with you.)

 

Time Frame or Term of the NDA

 

When will the NDA expire, and under what conditions? Your first impulse might be to say “never,” and for some proprietary information, that might make sense–but most business relationships don’t last indefinitely, and it’s not always reasonable to hold the recipient to the agreement with no end date (and consequently, it may not be enforceable!).

 

There are two perfectly reasonable approaches to setting a term for an NDA:

 

  1. Set a specific end date (e.g., 2 years) and renegotiate to extend or renew the NDA if necessary. (This makes sense if you’re dealing with evolving technology that will likely become obsolete, for example.)
  2. Set a time frame based on the termination of your business arrangement (e.g., 2 years after the contract ends). This gives you a safety barrier so the recipient can’t “quit” and immediately exploit company secrets–for example, trying to recruit your clients away from you based on the contact list you gave them.

 

Whichever method you use, make sure to specify that you retain all rights to your proprietary information covered by copyrights or patents and that the misuse of that information is subject to possible legal action even after the NDA expires.

 

Exclusions to the NDA

 

While you might be tempted to make a blanket statement that all company information is confidential, it’s not necessarily a reasonable demand. You need to ask yourself: What is the value in keeping this information secret? Is there a legitimate interest in protecting it? It’s impractical, for example, to demand your recipient keep quiet about information that is already public knowledge–and if you were to sue them for sharing previously known information, chances are a judge would throw it out, anyway.

 

Thus, to make the agreement fair and legitimate for all involved, it’s helpful to detail the types of information that would not fall under NDA protection. For most companies, standard exclusions might include information that is already public knowledge, information the recipient already knew through another party, and information they are legally obligated to disclose (e.g., via a subpoena).

 

You naturally want your NDA to provide your company with ironclad protection–but at the end of the day, remember that a non-disclosure agreement is just that: an agreement. A well-crafted NDA will strike the perfect balance between protecting your company legally and being reasonable enough for the other party to agree to its terms. Optimally, your goal is to create an NDA that you’d hopefully never have to go to court to defend.

 

The best way to ensure your NDA serves your company needs is with the help of an experienced attorney. Hood Venture Counsel is here to help. Reach out to us to schedule a free initial consultation.

 

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