Understanding the Parts of a Non-Disclosure Agreement (the DNA of the NDA)
Any time you enter into a discussion with another party or business, it is always wise to have a Non-Disclosure Agreement (NDA) in place and executed. Last month I discussed NDAs—what they are and why they are important. I received quite a bit of feedback from that article, so I thought we would dig a little deeper. This month I would like to delve into the actual DNA of the NDA. There are several essential parts of an NDA. The components listed below are not the only parts, however, these are the most important parts. These are the items on an NDA you will want to review and make sure you are crystal clear on their meaning and affect before signing on the dotted line.
The parties of the NDA are the people or business entering into discussions. This seems ridiculously obvious. However, there have been times when one thought they were discussing a project with one person only to find out that the person they were negotiating with represents a much larger entity. Maybe what is discussed or negotiated wouldn’t change, however, knowing the parties involved helps you know how much business experience the other party has and potentially their ability to abide by the terms and enforce the NDA.
The term of an NDA specifies when the protected period begins and when it ends, if it ends at all. It is important to take note of both the beginning and ending dates. I’ve seen situations where it was imminent that the NDA was going to be signed, and the two parties started talking. Those talks were not protected. I found out down the road about it because someone came to me saying that one side had breached the terms of the NDA. Not a whole lot I could do at that point, unfortunately.
The Confidential Information
You will want to have a clear grasp on what information you are seeking to protect and, if the NDA is mutual, what information the other side expects you to keep confidential. Sometimes these sections can be very simple, but often this section is a catch-all. That being the case, it is important for you to err on the side of caution. If you aren’t sure if something is considered confidential information, don’t discuss it with a third party. Better to be safe than sorry and sued!
To protect confidential information, there may be extra steps that parties need to take to protect that information. For example, files may be password-protected where only the parties are able to see them. Or the files are only available to certain members of a company. If the information you seek to protect is confidential, then you will not want every single person from the other company being privy to that information, at least until the collaboration has been cemented.
Remedies is the legal term for what makes the wronged party whole. It can be monetary or it can be equitable . Think allowing something to be done or stopping something from being done to make things fair—an injunction is a good example. It’s important to know what your remedies are against someone who compromises your confidential information, but it’s important to know what the remedies are against you if you compromise information. It is possible that the remedies are so stiff that it could bankrupt your company. Sorry to be so blunt, but I have seen it happen; so pay attention to that section.
Indemnification is where one side agrees to assume liability for certain actions they have taken or failure to act. Again, you’ll want this section narrowly drafted, so you are indemnifying a certain person or a specific set of folks in the company, not all business affiliates. That’s too broad, but I have seen it happen!
The Governing Law
This is the law that governs the NDA. If you both are located in the same state, then this is a non-issue. However, if you are in Georgia and the company you are collaborating with is in North Carolina, you will want to know whether Georgia law or North Carolina law governs. The law that governs also dictates where suits can be filed.
All of the provisions can be overwhelming and intimidating. Don’t allow that to happen. Educate yourself, and if you are unsure, seek the counsel of an attorney that knows how to advise on NDAs. It’s better to walk into an agreement with your eyes wide open than to be blindsided halfway through the negotiations.
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