A Non-Disclosure Agreement (NDA), also referred to as a Confidentiality Agreement, creates a legally binding obligation between parties to keep certain information that is shared between them protected. When evaluating a potential business relationship, you should always execute an NDA prior to sharing any secret, sensitive, or private information. If you wouldn’t want it plastered on a billboard, don’t hand it over without an NDA!
So now that you know an NDA is important, you should go ahead and sign it, right?
You should always treat each NDA as a unique contract, and you should never sign one without reviewing it first to make sure it doesn’t contain any bad terms.
Here are some key things to look for:
- Is it one-sided, or mutual? If the NDA wasn’t drafted by your attorney, you’ll need to review it to make sure it isn’t one-sided, doesn’t contain any unfair terms, and protects you. If both parties are going to be swapping information, the terms need to be mutual to protect you both as a receiver and sender of confidential information.
- Are the correct parties named? Make sure the appropriate legal entity or person is identified as the party you are actually doing business with, and your business is identified correctly as well. If you are named personally, the agreement should specify that you are acting in your capacity as an authorized signatory of your business. Make sure the person signing on behalf of the other company is an authorized signatory as well.
- Is the agreement dated? There should be an effective date for the agreement, along with dates for each signature.
- Is “confidential information” properly defined? The NDA shouldn’t list everything under the sun as being protected and confidential. It should list out important documents that are applicable to the potential transaction, such as customer information, trade secrets, innovative processes, financial information, and other privileged data.
- Are there set time frames? There should beclear obligation time frames, including the time period when the parties can send and receive confidential information, the length of time the information must be kept confidential, and the length of time trade secrets must be kept confidential. These time frames should be reasonable for the transaction at hand.
- Is there a non-solicitation or non-competition clause? Watch out for a non-solicitation or non-competition clause buried in the NDA. Larger companies tend to benefit from these clauses, whereas if you are a startup, you’ll want to be careful not to restrict yourself unnecessarily. Any such restrictions should be limited in time, nature, and geographic scope.
- Are there specific marking requirements? If the NDA lists specific rules for marking information as “confidential”, make sure they aren’t overly burdensome. For example, if the NDA requires that you write the word “CONFIDENTIAL” in all capital letters in red, Times New Roman font, size 22, in the top right-hand corner of every page, your failure to do this on any given page could jeopardize it being covered under NDA.
- Do your IP rights remain with you? In some cases, an NDA may specify that the rights to any intellectual property, or work made for hire, will be transferred automatically to the recipient. Make sure this language is removed, if inappropriate for your scenario.
- What happens when the NDA ends? Do you want a requirement that all confidential information that has been shared by you must be returned, or destroyed, upon termination of the NDA? If so, make sure you include relevant language with explicit instructions.
- Make sure you both sign it, and get a counter-signed copy. If there aren’t two signatures, the agreement is null and void. Take the time to make sure you have a complete document in your files.
Even once you are confident that your NDA is satisfactory, asking a seasoned attorney to perform a quick review before you sign will provide you with excellent insurance that you are good to go.
Andrea A. Tarshus, Esq. began Tarshus Law Firm @Tarshuslaw.com in 2015 to fill a void in the legal ecosystem: efficient, accessible, and fair in-house and General Counsel legal services for business owners. Her engagements regularly include business legal startup paperwork, negotiating and executing contracts, administering internal legal and operational controls, and creating legal documents that protect the company's best interests.
This article is intended to be informational in nature, should not be relied upon by the reader without consultation with an attorney, and does not create an attorney-client relationship between the author and reader.