If you are in business or just starting a new business, at some time your company will either be asked to execute a Non Disclosure Agreement or your company will want another party to execute an agreement that requires the receiving person or entity to protect your company’s confidential information.
These Agreements are sometimes called confidentiality agreements or limited use agreements. The agreement may be unilateral or it may be mutual, both parties are disclosing information. No matter what the document is called there are always a few keys elements that such an agreement should incorporate.
Define what is confidential information: It may be drawings, sales information, customer lists, financial information or it may be formulas or other information that you or your company treat as a secret.
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 that 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 if the information in the public domain prior to the agreement, or was known to the receiving party prior to the disclosure. Usually there is a provision that allows disclosure in response to a subpoena but only after notice to the disclosing party.
Warranties; No Further Agreement and Term: 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 for instance as to how good the idea may be. The parties are also not agreeing to do business just because there has been an exchange of information. Finally, the agreement has a term such as 2-5 years. 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 you will want jurisdiction and venue (where a suit would be filed) to apply. These issues become more complex in mutual agreements.
Agreements look fairly straightforward and you may be tempted to sign one without much thought or you may feel comfortable using someone else’s format as your own. It is always a good idea to talk with your business attorney and 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.
Paul D. Creme is an attorney with Hamblett & Kerrigan PA. His practice is focused on business and corporate law. Of particular interest are the areas of software and emerging technologies. You can reach Attorney Creme at [email protected].