Non-disclosure agreements come in many forms. They can also sometimes take a frustratingly long time to prepare, negotiate and finalise. Find out why this happens and what you may be able to do to help avoid these problems both with the form of agreement you choose from the outset and potentially contentious areas.
What you should include in non-disclosure agreements?
Non-disclosure agreements (NDAs, confidentiality agreements) in the commercial world come in many forms and vary significantly in length and what is covered in them. They can also sometimes take a frustratingly long time to prepare, negotiate and finalise, leading to delays in being able to get on with the main commercial reason for having them in the first place – progressing the actual transaction which prompted the need for the NDA.
The problem arises more with one-way NDAs than with mutual NDAs. With a mutual NDA, where each party will provide its own confidential information to the other party, the confidentiality obligations and related restrictions will apply on the same terms to both parties as the recipient of the other’s confidential information. The party which prepares the first draft of the agreement will usually prepare the document on a more reasonable and realistic basis, knowing that it will apply equally to both parties.
Is there a standard form non-disclosure agreement?
The short answer is there is no universally accepted standard form of NDA. Over time, people have attempted to establish a standard form NDA which will cut out the time and effort required to get to an agreed document. The same problems with NDAs still crop up time and time again. So, what are the main reasons for this?
At Paper Rock, we find that these are usually a combination of some or all of the following:
- if the first version is prepared by the party which will be the discloser of its commercial confirmation, unrealistic and unreasonable restrictions placed on the recipient
- if the first draft is prepared by the party which will be the recipient of the other party’s commercial information, insufficient legal protections for the disclosing party
- one party’s reluctance to amend or negotiate the document, often relying on arguments like this is “their standard form” or “market practice”
- a general misguided belief that more words and length are better for legal documents
What should be covered in a well-drafted NDA?
A well-drafted confidentiality agreement should cover the following principal matters:
- the parties to the NDA, using their correct full names and (if companies) their corporate details
- the information which will be covered by the NDA (usually defined as “Confidential Information”)
- whether the NDA is “one way” or “mutual”
- the limited purpose for which the recipient can use the disclosed information
- restrictions on the recipient disclosing or using the disclosed information other than for the specified purpose
- the limited categories of people to whom the recipient may supply the disclosed information, usually employees and professional advisers who need to know that information for the specified purpose
- exceptions to the restriction on the recipient from disclosing the disclosed information (for example, if required to do so by law)
- a reasonable period for how long the restrictions should last
What issues arise in negotiating NDAs?
Common examples of issues which arise in negotiating NDAs include:
- the scope of the confidential information to be protected – the disclosing party may draft this too wide or without including what are considered to be standard exclusions, for example information which is already in the public domain
- the range of people to whom the confidential information can be further disclosed by the recipient and the responsibility which the recipient has for ensuring that those people comply with the NDA – a balance needs to be struck in the wording to allow the recipient to disclose information to the people who need to receive it for the purpose of the underlying commercial purpose or transaction. The recipient should accept responsibility for compliance with the NDA by people to whom it has disclosed the confidential information (provided the terms of this are not unrealistic)
- if the disclosing party requests the return or destruction of the disclosed Confidential Information, what the recipient must do to comply with this request. Confidential information is often provided electronically in digital format and the disclosing party should be realistic about what the recipient should be obliged to do to ensure the deletion of information which has been held on the recipient’s network or other data storage platforms
- how long the confidentiality restrictions should last. There is no rule about how long this should be. The period will depend on the nature of the information and how long it will remain commercially sensitive. A period of more than 2 or 3 years would be unusual, as would a period of less than 1 year
- the inclusion by the disclosing party of an indemnity for breach by the recipient of its obligations under the NDA
- the inclusion of non-solicitation covenants as a matter of course, under which the discloser seeks to restrict the solicitation by the recipient of the discloser’s employees, suppliers and/or clients for a period of time
Paper Rock confidentiality agreement templates
Our selection of template NDAs are all aimed at providing a solution which, whilst legally robust for the disclosing party, achieves a balanced position between the parties. Each template is written in plain English and is accompanied by clear explanatory guidance on the document and its use. For more details, visit our non-disclosure page on our website.
