Happy New Year! With the second decade of the new millennium upon us, I wanted to discuss the most common agreement individuals and companies enter into that affects intellectual property – the Non-Disclosure (i.e., Confidentiality) Agreement. While this type of agreement is no doubt considered “routine” or “standard,” maybe this is a good time to actually review the form that your enterprise uses, and each time you go to execute one, consider the following:
1. Parties. Who is the contracting party? That is, does the Confidentiality Agreement (commonly referred to as “Non-Disclosure Agreement” or “NDA”) specify a parent, affiliate or subsidiary company? Does the NDA allow the party receiving your small firm’s confidential information to share it with a parent, affiliate or subsidiary?
2. Personnel. Does the NDA need to specifically list the employees and other personnel of the receiving party who can have access to the confidential information?
3. Direction. Does the NDA contemplate a mutual (i.e., “two-way”) exchange of confidential information or just a “one-way” exchange?
4. Subject Matter. Does the NDA accurately describe the confidential information (e.g., documents, discussions, visual presentations, etc.) being disclosed? Is the existence of the NDA itself also considered confidential information?
5. Term. How long does the NDA stay effective (i.e., when is it effective and when does it terminate)? How long does the confidentiality obligation lasts? One year? Two years? Three years? As long as the discloser maintains the confidential information confidential?
6. Use. What are the allowable uses of the confidential information (i.e., for deciding whether to enter into a business transaction, for testing purposes, etc.)?
7. Labeling. Does the NDA require confidential information to carry a designation (e.g., markings, stamps, etc. on documents, a follow-up letter for oral disclosures, etc.)?
8. Obligations. Does receipt of confidential information carry an obligation to enter into an agreement or specific relationship with the disclosing party?
9. Independence. Does the NDA specifically allow the receiving party to independently develop products and/or services that compete with the confidential information they receive or independently pursue similar opportunities?
10. Residuals. Does the NDA contain a “residuals” clause that allows information mentally retained by the receiving party’s personnel who have had access to the confidential information to be used freely?
11. IP. Does the NDA need any IP ownership provisions in case, for example, the meetings between the parties become “brainstorming” sessions where new IP is created?
12. Assignment. Can the parties assign or transfer the NDA (e.g., in the case of a merger or the sale of the business)?
In sum, the NDA must answer the “what if this happens” questions raised by the parties’ contemplated relationship. While no NDA can practically answer all the “what ifs,” a properly drafted one will anticipate those that are most probable. Thus, quality legal advice that is tailored to your individual or enterprise’s unique situation is vital.
