The Non-Disclosure Agreement is one of those contracts that has slowly turned out to be the bane of my existence. I see so many companies asking for an NDA when they start talking about a business relationship with a potential vendor or partnering agreement. I don’t particularly have a problem with a NDA, although for the vast majority of contemplated transactions, it is entirely unnecessary. But I will say this, most NDAs that I see create great fodder for a class in how not to draft a NDA, that is if I can keep my head from exploding at the poor drafting in both a legal and English grammar sense.
So, if you are going to have a NDA, please don’t consult the law firm of Google, Bing &Yahoo! unless you are certain of the quality of the product (and are you really certain). So I thought I would explain some of the necessary features of a NDA that if you truly chose to not have an attorney draft one, you might be able to do an acceptable job (I will try not to act so wounded that you didn’t consult an attorney)
- Clearly identify the parties. Who is signing the contract? This factor is true in any contract.
- Clearly define what confidential information means. Don’t be afraid of broad definitions. To be frank, most of the time, when I see a definition of confidential information (that is if I see one), it is usually a laundry list of items most of which will never be shared. For example, often I will see the laundry list include things like financial data, customer lists, contractor lists, and patents or other intellectual property. As a designer, if you are getting financial data or patents from a client, you need to really, really think about the discretion of this potential client or partner. A confidential information definition can be as simple as saying “all information received from the other party that is marked as confidential or that the receiving party would reasonably believe to be confidential or proprietary if the receiving party was the disclosing party.”
- Define the standard of care to safeguard confidential information. Probably more than 90% of NDAs I review skip over this point. Often the NDA assumes (but should express clearly anyway) the receiving party will not disclose the confidential information in a willful manner. But what about inadvertent disclosure? What about a hack? (Wikileaks anyone?) What is the standard of behavior? This is actually pretty simple: the receiving party should safeguard confidential information at least to same manner it safeguards its own confidential information.
- State when the agreement ends and when the duty of confidentiality ends. So many NDAs simply don’t include this term. A NDA is not forever and shouldn’t be. If the parties are contemplating a deal and that deal happens, a new agreement is usually signed. What happens to the NDA? What if the deal falls through? What happens to the NDA? What if one party decides to terminate the NDA? What are the parties’ responsibilities for returning or destroying confidential information? State when the agreement ends. State when the duty of confidentiality ends if different. State how the parties can terminate the NDA and what the parties must do with information received.
- State any limits on the use of the confidential information. This seems like a no-brainer, that the receiving party cannot use the information for anything other than contemplating the deal or carrying out a deal’s terms. Think about it, if you give someone your confidential information, do you want them using that information to launch a new product line or competing idea? So, make sure it is limited.
- There are always exceptions to the duty of confidentiality. Most of the time, you will see the duty not apply to:
- Information that is the public domain at the time of disclosure (which always makes me laugh that a party would consider this confidential)
- Information that is received from third party who is not bound by a confidentiality agreement (again not very confidential)
- Information that must be disclosed pursuant to a government order, judicial subpoena or other force of law.
- Approved for release by the owning party.
Don’t forget the “boilerplate” all those terms that most people don’t read but are still important, such as where is dispute will be resolved, what law governs the enforcement of a contract, etc.
Quite a few people will tell you that NDAs are absolutely necessary. I am not always certain, but if you are going have a NDA, have a quality NDA and make sure that you include these provisions.
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.
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