For most new business engagements, the first hurdle is a Non-Disclosure Agreement, or NDA. Many clients see an NDA as a quick formality, necessitating merely a quick look-over, before entering into business discussions. While the majority of NDAs are in fact ‘agreeable,’ care should be taken to ensure that proprietary and technical information is adequately protected, and that the NDA is within the scope of the business discussions as well as the transaction(s) it relates to.
Scope: The scope of an NDA should be clearly defined. The agreement itself should only cover the disclosure of confidential and proprietary information. Often times, other areas of business dealing can slip into an NDA, for instance, evaluation licenses or preliminary services. While this may be workable, it is advisable that an NDA simply cover discussions involving confidential and proprietary information, and that all other dealings are handled in their appropriate document.
Confidential Information: An NDA should clearly identify the information that is to be held in confidence. These ‘identifying’ paragraphs can be exceedingly long, or a few sentences, but it is important to ensure that the confidential, proprietary, or technical information to be disclosed is correctly identified within the scope of ‘Confidential Information’.
Exclusions: Most NDAs provide carve outs for information that is to be excluded from the definition of Confidential Information. Some typical exclusions are: information that is already in the public domain; information disclosed by a 3rd party without obligation of confidence; and information independently developed without any use of the confidential information. Even though exclusions are very typical in an NDA, it is still important to review them and ensure they meet the expectations of both parties in regard to their specific transaction.
Marking Requirements: A common requirement in NDAs is that the disclosing party clearly mark or identify the information that is covered by the NDA. Marking or identifying the information by the disclosing party protects both parties so there is a clear understanding of what is and what is not considered confidential. Another alternative to cover information that may not end up being marked is to include a clause that confidential information includes information that could be reasonably construed as confidential.
No Warranty/AS-IS: Information provided under an NDA is just that, information to be evaluated in the course of business discussions. An express waiver of all warranties, and a statement that all information is provided “AS-IS” is useful to protect both parties.
Even though protection of technical or proprietary information is key for most companies, there is no one-size fits all NDA. NDAs cover a multitude of situations and transactions and each one should be clearly drafted to meet the specific needs of the parties involved.