Nondisclosure agreements (NDAs) are generally straightforward documents and follow a consistent format. People often pull a form off the internet, fill in the blanks and send it off to the other side. Likewise, recipients of NDAs often skim and sign them. In general, that’s OK. That being said, there are often subtle differences among “form” NDAs. Use the simple acronym below to confirm that you have the right kind of NDA and that you’re adequately covered by it:
M – Is it mutual or does it only protect the information of one party? If both parties are swapping information, make sure it’s mutual.
S – Does the definition of confidential information include only documents “stamped” confidential? In other words, if you hand over something that is clearly a sales forecast or describes a proprietary technique, it may not fall within the definition of “confidential information.” Ideally, confidential information is defined by the nature of the information, not whether it has “CONFIDENTIAL” written on it.
V – How does the NDA treat confidential information that is verbally conveyed? Often, in order for verbal information to be considered confidential, it needs to be put in writing and delivered to the receiving party within a certain period of time after the conversation occurs.
E – Make sure there are exceptions to the definition of confidential information, such as information in the recipient’s possession prior to disclosure, etc.
P – The use of the confidential information should be restricted to a specific purpose, such as due diligence for a proposed business transaction.
N – The recipient company should disclose the information only to employees who are necessary to the project. Watch out for language that allows the recipient to share the information with “agents” or “affiliates.” That means people outside the company.
F – There should be a provision allowing the recipient to divulge the information if it is forced to through a court or regulatory action. There should also be language that requires the recipient to notify the disclosing party of the court/government action so the disclosing party has an opportunity to block it.
T – How long does the obligation to keep the information confidential last? The typical terms are five years or forever. If you are disclosing the information, consider what would happen five years from now if the information became public.
L – Which state’s laws apply? Even more importantly, where will the lawsuit take place if there is a dispute? If you are a New York company, you may not want to have to hire a California attorney because the agreement requires disputes to be resolved in a California court.