How to Review a Non-Disclosure Agreement

By James O’Connell, Partner, Mayo Wynne Baxter.

A non-disclosure agreement (NDA) is a legally binding document that prohibits a business from sharing with anyone else information that it has received in confidence. In today’s world, where businesses rely heavily on intellectual property and confidential information, NDAs have become an essential part of protecting sensitive information. Seriously reviewing any NDA that you are asked to sign is vital.

As a business lawyer I find too many people think that an NDA is a standard form document (which means they all say the same thing) – not true!

Here are some issues to consider if you are asked to sign an NDA:

1. Know thine enemy

As a rule of thumb, the more the other party acts like Gordon Geko’s younger brother, the more carefully you will need to review their NDA and the more detail you will need. Ambiguity is not your friend.

2. Does it go far enough?

As mentioned, NDAs are designed to facilitate the exchange of confidential information to see if a deal can be done. Some variations include non-compete provisions. This is because a basic NDA will say that the other side cannot disclose to anyone else your confidential information – but that doesn’t stop them from using it for themselves (i.e., exploiting it without disclosing it).

3. Is it one-sided?

The most common problem I find is where the terms are reasonable, but they only protect the information of the party supplying the NDA – you are left out in the cold. Both sides information needs protecting.

4. Definition of confidential information

The NDA should define the type of information considered confidential. This is key. The definition should be precise and comprehensive. The biggest mistakes I see are situations where the definition:

a. is detached from reality. Virtually everything is classified as confidential even when it clearly isn’t. It’s unworkable, and will stop you from conducting normal business, or, conversely;

b. is so vague you won’t know where you stand if the other side threatens to enforce the NDA.

The NDA should include any exclusions or exceptions. For example, information that is already publicly available, information that is developed independently, or information that is disclosed through a court order should not be considered confidential. 

5. Purpose of the NDA

The NDA should include the reason why the confidential information is being shared and (hugely important) the specific project or initiative it relates to. 

6. Subsidiaries, group companies, employees

These connected parties tend to get added in without any thought. But is adding them necessary? If you don’t control them, don’t promise their good behaviour! 

7. Obligations of the parties

The NDA should clearly specify the obligations of the parties involved. It should outline what information must be kept confidential, the manner in which it should be protected, and the consequences of any breach. The NDA should also specify the obligations of the recipient after the agreement has expired, including the destruction of any confidential information (but keep it realistic re this last point).

8. Term and termination

The NDA should specify how long confidentiality will last (years usually) and the conditions under which it can be ended. Include a provision for termination by either party upon written notice if negotiations may go nowhere.

9. Governing law and jurisdiction

If either of the parties or elements of the project are based overseas it is important that the NDA specifies the governing law and jurisdiction of the agreement. This information is essential in case of any legal disputes. 

10. Representations and warranties

The NDA should include representations and warranties from both parties. The disclosing party should represent and warrant (formally guarantee) that they have the right to disclose the confidential information and that the information is accurate and complete. The recipient party should represent and warrant that they will comply with the obligations of the agreement.

11. Remedies

The NDA should specify the remedies for any breach of the agreement. This can include an injunction to stop unauthorised distribution of your information, monetary damages, or both. The NDA should also specify whether there is any cap on the amount of damages payable in the event of unauthorised disclosure of confidential information.

12. Confidentiality of the agreement

The NDA itself may be something you also want kept confidential. If so, include a provision that prohibits either party from disclosing the existence of the agreement or its terms to any third party, except as required by law.

13. Enforceability

Don’t sign an unreasonable, unfair or one-sided contract in the belief that the courts won’t enforce it. Only a few types of contract must be reasonable to be enforceable, NDAs are not one of those!

In conclusion, review every NDA to ensure it is fit for purpose in the particular circumstances relevant to you at the time. The review is not a process that should be undertaken lightly.

joconnell@mayowynnebaxter.co.uk

www.mayowynnebaxter.co.uk