Ask a Lawyer // August 2017 // Thoughts on the Nondisclosure Agreement

One of the banes of my existence is the nondisclosure agreement. Nondisclosure agreement, in my belief, one of the most abused and unnecessary contracts in modern business. Most of the information exchanged between businesses is neither a trade secret nor truly confidential. Think about, who regularly goes around publicly talking about their trade secrets.

I see nondisclosure agreements in circumstances where the agreement is either unenforceable or pointless. Even when the nondisclosure agreement is needed, it tends to be overbroad in terms of its application and duration. In the past couple months, I have seen nondisclosure agreements with no length of time to maintain confidentiality or time frames in excess of 10 years. Agreements of more than 10 years to keep something confidential borders on the ludicrous.

I do not mean to say that all nondisclosure agreements are bad simply because they are nondisclosure agreements. But, if you’re going to use a nondisclosure agreement, use it in the manner that it is supposed to be used. Here are some tips that you should consider when using and reviewing nondisclosure agreements.

  • Carefully consider the definition of confidential information. Aside from stupidly long agreements, the definition of confidential information is usually the most overwrought piece of writing I have ever seen. The definition will include everything from product design and pricing to somebody’s independent contractor list. In the design world, you may be privy to somebody’s product ideas or service ideas, marketing plans, and perhaps some budget information. Particularly if the product is pre market, keeping this kind of information confidential is likely important to your client and reasonably included nondisclosure agreement. But other pieces of information, such as customer lists or other contractor lists, probably should not be disclosed to you and if they are disclosed to you you might want to consider the level of discretion your client is displaying.
  • The duty of care and duty of confidentiality. Most nondisclosure agreements that I read did not separate out these two aspects. But I believe they should be separate concepts addressed in the nondisclosure agreement. The duty of confidentiality is the obligation to keep the information secret. The duty of care is the how confidential information is maintained. Most nondisclosure agreements will say the receiving party has a duty to keep the information it receives confidential. But rarely do nondisclosure agreements talk about a reasonable duty of care. The kind of standard I prefer with a duty of care is that the receiving party shall use at least the security measures it uses for its own confidential information.
  • Duration. If a potential client is coming to you as a designer, chances are they are pretty close to market with their product or service. The potential client may already be in the market. If the client is asking you to sign a nondisclosure agreement take a good, hard, long look at the duration of the nondisclosure agreement. Frankly, in most cases a two-year duration is sufficient. In some industries, the term may need to be longer and in some cases, it can be shorter. But a good rule of thumb is 1 to 2 years.
  • Termination. While I can’t say it is universal, a fairly large percentage of the nondisclosure agreements I read have no mechanism for terminating the agreement. The most common problem that arises is if the parties to the nondisclosure agreement signed a new agreement for services. Chances are high that the new agreement will contain a nondisclosure or confidentiality provision. What if the new agreement and the nondisclosure agreement conflict regarding the duty of confidentiality? What if the nondisclosure agreement requires arbitration to resolve a dispute but the new agreement does not?

These concerns may seem silly and pointless in many aspects, particularly since most designers do keep their client’s information confidential. If the designer can’t keep their client’s secrets, they won’t be in business for very long.

If you are going to have nondisclosure agreement, make sure it is a sensible one. Make sure you understand all the defined terms and your duties under the contract. I cannot say for certain when any given nondisclosure agreement will be assessed by a court, but if you must go to court on a nondisclosure agreement, even if you win, you have still lost.

Of course, the simplest policy is to treat each client and their information as if they have the nuclear launch codes in their data.


BIO Disclaimer

MATT JOHNSTON IS A SOLO ATTORNEY WITH A FOCUS ON SMALL BUSINESS REPRESENTATION, COPYRIGHT AND TRADEMARK LAW, AND DISPUTE RESOLUTION. MANY OF MATT’S CLIENTS ARE DESIGNERS AND CREATIVE PROFESSIONALS WHOSE CONCERNS OVERLAPPING MATT’S PRACTICE AREAS. MATT CONCENTRATES ON DRAFTING CLEAR CONTRACTS OF ALL TYPES AND HELPING DESIGNERS WITH THE LEGAL SIDE OF THE DESIGN BUSINESS. AS A BENEFIT TO AIGA MEMBERS, MATT OFFERS A 10% DISCOUNT ON ALL CONSULTATION APPOINTMENTS, FLAT FEE PROJECTS, AND HOURLY FEES.

THE CONTENT OF THIS COLUMN IS FOR EDUCATIONAL AND INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS LEGAL ADVICE APPLICABLE IN ANY SPECIFIC SITUATION. NO ATTORNEY-CLIENT RELATIONSHIP IS CREATED THROUGH THIS COLUMN. IF YOU NEED CONFIDENTIAL LEGAL ADVICE, MATT IS AVAILABLE FOR PRIVATE AND PRIVILEGED CONSULTATIONS. CONTACT MATT IF YOU HAVE SPECIFIC CONCERNS.

By Matthew S. Johnston
Published August 7, 2017
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