What You Need to Think About When Crafting a Non-Disclosure Agreement
Non-disclosure agreements (NDAs) protect sensitive information in business deals. Depending on the structure and specific language of the deal, NDAs have long-term effects on the recipient of the agreement. Make sure you know what is in any non-disclosure agreement you are a part of and be certain that you can fulfill the terms of the agreement without undue hardship before you sign.
When entering into a non-disclosure agreement, ask yourself some questions:
Do you even need an NDA? Most seed or venture capital investors will not enter into an NDA of any kind. This is because entering into an NDA increases the risk that the recipient of the “sensitive” information may face future claims of wrongful use of trade secret. Venture capitalists are involved in multiple different businesses, so an NDA can severely limit their ability to maneuver.
Should it be mutual or one-way? Some agreements only cover the disclosure of confidential information by a single party. Other agreements run both ways, requiring both parties to keep each other’s secrets. Talk to your attorney about what kind of NDA you will need for your deal.
What is the difference between non-disclosure and non-use? Simply, “non-disclosure” prevents a party from disclosing confidential information, but does not restrict that party’s use of the confidential information. “Non-use” prevents a party from using confidential information other than for a specified purpose.
What is defined as confidential information? This is an important part of the agreement. If the definition of confidential information is too broad, it could be almost impossible for the recipient not to violate terms. If the definition is too narrow, it is possible for egregious misuses of information to get by lawfully. This is where an experienced attorney can help. They know how to craft the language of the deal in a way that benefits all parties and closes loopholes.
What is the term of the agreement? The term of an NDA is usually somewhere between three and five years. The period depends on the strategic value of the information and how quickly that information may become obsolete.
Because NDAs can have such potentially damaging effects if one party decides to sue another, you should make sure that your NDA is written unambiguously to protect your interests and to enable compliance without confusion or undue effort. Even if you have a form of an NDA, and even if it was originally prepared by a trusted source, it is important to consult with a knowledgeable attorney to make sure that your NDA adequately protects your interests under your specific applicable facts. Whether a startup or an established business, the NDA need to be customized to the facts to have the intended effect.
This article has been authored by Padmaja Chinta a Lawyer based out in New York, United States of America. She is a partner at Cittone & Chinta LLP and a graduate of the University of Pennsylvania Law School.
Originally published at www.selvamandselvam.in on February 15, 2017.