Is there a template I should follow when it comes to drawing up non-disclosure agreements?
Friday, May 18, 2012/
While the terms of many non-disclosure agreements or confidentiality agreements (NDAs) will often be similar, there really isn’t a “template” that you can use.
The appropriate form for an NDA will depend upon a number of factors. Therefore it will be more useful for you if I outline below some of the main matters to look out for in your NDA.
Mutual or one-way
NDAs may be either mutual or one-way.
You should consider using a one-way NDA when there is only one party disclosing information. For example, you are disclosing your idea to a potential business partner.
A mutual NDA is used when the parties intend to disclose information to each other. For example, you and your business partner intend to swap business plans to see if you want to form a partnership together.
Definition of confidential information
NDAs generally contain a definition of “confidential information”. This definition is important as the confidentiality obligations under an NDA will usually only apply to information that falls within this definition.
If you will be disclosing your confidential information you should review this definition to check that all forms of information you may disclose (for example technical data, research data and financial projections) fall within this definition.
If the fact that you are in discussions with the other party or the terms of the NDA are also confidential, then you need to ensure the definition captures that.
An NDA will usually contain a definition of a “purpose”. This definition relates to the purpose for which the recipient may use the confidential information disclosed under the NDA.
Depending on whether you are the discloser or recipient of confidential information or whether the NDA is a mutual or one-way agreement, you may want the “purpose” defined a particular way.
For example, you would want to make sure that the purpose is broad enough to cover your intended uses of the confidential information, but not so broad that you have effectively authorised its use beyond the intended purpose or use that is detrimental to you.
Disclosure to others
The NDA may restrict the recipient of confidential information from disclosing it to others.
For example, the recipient may be restricted to disclosing the confidential information to other persons only if those persons “sign up” to the NDA or by law are required to keep the information confidential (such as legal advisors or accountants), and even then on a “need-to-know” basis.
Security and control
If you will be disclosing your confidential information, you may want the recipient to take specific steps to protect the confidentiality of your information.
For example, you may wish to require the recipient to treat and protect your confidential information in the same way as they would treat and protect their own confidential information.
You may also wish to require the recipient to immediately notify you if any person uses or obtains access to the confidential information that shouldn’t have.
Return of confidential information
The NDA should also provide when the parties must return or destroy the confidential information received under the NDA and the way in which they must return or destroy it.
For example, one party may have the right to “pull out” of the discussions at any time with no further obligations or after a specified period (see below).
Care should be given to ensure that copies and notes of confidential information (which should form part of the definition of confidential information) are also returned or destroyed.
You should also consider whether you wish to allow the recipient to retain any of your confidential information for any purposes.
For example, whether they are allowed to retain if required by law for legal or accounting purposes.
NDA sometimes contain a term or period, after which the confidentiality obligations will stop applying.
Please note that without specifying a term or period, the obligations in respect of confidential information will potentially continue indefinitely.
However, you should always consider on a case-by-case basis whether or not a term or period is appropriate for you.
For example, it may never be appropriate to disclose some trade secrets regardless of how long it has been.
While some of the above may seem logical, you would be surprised how often I have seen poorly prepared NDAs.
Therefore, always do your homework and ask for professional help if you are not sure.