Non Disclosure Agreements

By:  Paul D. Creme, Esquire

If you are in business or just starting a new business, at some point your company will require the execution and delivery of a Non Disclosure Agreement. Usually the agreement will be mutual as both entities will be disclosing confidential information that each party wishes to protect.

These agreements are sometimes called “confidentiality agreements” or “limited use agreements.” No matter what the document is entitled, there are always a few keys elements that each agreement should incorporate.

What is Confidential Information:

It may be drawings, sales information, customer lists, financial information, formulas or other information that you or your company believe is. The best approach is to define confidential information as broadly as you can to make sure all information you wish to protect is covered. Sometimes it may make sense to add catchall language such as any information that may be handled in a confidential manner.

Define the parties:

Which party is disclosing the information?  If both parties are disclosing information, the agreement is a mutual agreement.

Define the information and make sure that the use of the information is limited:

Is the purpose of the disclosure to consider an acquisition? If so, if the deal is not completed, the party that has disclosed the information should include a provision that requires the information be returned. If the purpose is to consider a potential sale of goods or services, the agreement should clearly state the purpose and require the receiving party’s use be explicitly limited thereto. Many times there is also a limitation as to who at the receiving party may review the information.

Confidentiality Obligation:

Usually the receiving party agrees to protect the information in the same manner it protects it own confidential information. There are some limited exceptions or exclusions to the obligation such as whether the information was in the public domain prior to the agreement, or was known to the receiving party prior to the disclosure. Also, there is usually a provision that allows disclosure in response to a subpoena or court order, but only after notice to the disclosing party.

Warranties; No Further Agreement:

Most agreements will contain language that clearly states that the information is disclosed without warranty; in other words, the information may not be completely accurate. The receiving party must make its own decision as to the accuracy of the information.  The parties are also not agreeing to do business just because there has been an exchange of information.

Term:

There is some disagreement about whether to add a term to the agreement. Some drafters will argue that the obligation has no end date so a term is not needed. Others may feel more comfortable with a term for which the information may be held. In any event, the obligation not to disclose extends beyond the termination of the agreement.

Applicable Law; Jurisdiction and Venue:

If you are the party making the disclosure, you will want to use your own state’s laws and specify the jurisdiction and venue (where a suit would be filed) to apply. The question becomes more complex in mutual agreements.

The agreements look fairly straightforward and you may be tempted to sign one without much thought or feel comfortable using someone else’s format as your own. However, it is always a good idea to make sure that the agreement fits the transaction and that neither you nor your company is agreeing to something that may come back later and cause problems.  Consulting an attorney is advised.