Non Disclosure Agreement
What is it? What should be included in it?

Let's talk about non disclosure agreements. We talked earlier about the importance of using NDA's when dealing with third parties. . The NDA can also be called a confidentiality agreement, confidential disclosure agreement (CDA), proprietary information agreement (PIA), or a secrecy agreement.

Whenever two companies or individuals are considering doing business together they have a need to be open and share information. This can be awkward , especially if one of them has important proprietary information that they need to disclose for purposes of the discussion. Hence a legal contract is needed to clarify what is being discussed - the NDA is a legal and binding contract.

A non disclosure agreement can be "mutual", meaning both parties are restricted in their use of the materials provided, or they can restrict the use of material by a single party. In fact the first step to determining the appropriate content for a non-disclosure agreement is to determine the type of agreement that you need. A one-way agreements is appropriate when one party wants to disclose certain information to another party but needs the information to remain secret for some reason, possibly because of an upcoming patent filing or just to make sure that the other party does not use the information without compensating the discloser.

A Mutual non disclosure agreement is one in which both parties will be supplying information that is intended to remain secret. This type of agreement is far especially appropriate when businesses are considering some kind of joint venture or merger.

Types of Clauses

There are some boiler plate clauses that tend to appear in all non disclosure agreements. One is used to protect the person receiving the information so that if they lawfully obtained the information through other sources they would not be obligated to keep the information secret. In other words, the non-disclosure agreement typically only requires the receiving party to maintain information in confidence when that information has been directly supplied by the disclosing party only.

The NDA almost always is structured to include phrases that clearly outline the parties to the agreement, a clear definition of what is to be held confidential as well as any definite exclusions of things that are confidential.

With respect to these exclusions a very common list of restrictions includes a clause that outlines that the confidential data will be invalid if:

    the recipient had prior knowledge of the materials;

    the recipient gained subsequent knowledge of the materials from another source; or

    the materials are generally available to the public.

Finally - there are usually clauses that address:

    the terms (in years) that the agreements are in force.

    the obligations of the recipient regarding the confidential information

Size and Complexity of the NDA

I have seen one page NDA'a and have used them. I have also seen five page ones. An interesting thing I have observed is that many individuals prefer shorter agreements even though,in theory, the more complex ones have more safety provisions, especially for the recipient. I have tended to be flexible on length and complexity depending on the players. However I am pretty anal about the use/non-use of NDA's. I simply don't work with people who refuse to sign one.

One class of people who often refuse to sign NDA's are venture capitalists and other big investors. They apparently feel that signing them restricts them far too much from looking at other deals and they tend to look at a lot of deals. Yet another reason to not work with a venture capitalist :-)

Do You Need to Hire an Attorney to write a new one for you? My generic answer is no. There have been so many written over the years - and the legal language so well scrubbed down that you can often find good ones. I have quite a few on my hard drive. However - if I was responsible for a multimillion dollar deal and had a critical NDA I would always run it by an attorney experienced in contract law. It is after all a contract - and sometimes an important one.


Non Disclosure Agreement
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Mike Ervin
Mike Ervin - Cost Effective Small Business Patent Protection.

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