Mum's The Word - Nondisclosure Agreements, Confidential Disclosure Agreements and Confidentiality Agreements
What are the different types of NDAs?
Nondisclosure Agreement, Confidential Disclosure Agreement, Confidentiality Agreement, NDA, CDA and so on. Regardless of the title, companies sign agreements promising to be quiet on a regular basis. But are all NDAs the same? Why should you bother reading any of them or paying your attorney to review them?
What does an NDA Not Cover?
We see NDAs on a daily basis and most times, the agreements are exactly what you expect. But sometimes we get an NDA that includes unusual, unexpected or whacky terms. Here’s a short list of what NOT to expect in an NDA.
Waivers of Injunctive Relief
The most common first defense against breach of an NDA is to obtain a temporary or permanent injunction from a court. An injunction could prohibit the other party from disclosing your confidential information, either on a temporary basis while you fight it out in court or permanently as part of a final decision in a litigation. If someone discloses your company secrets, suing for money usually is not enough to make you whole, so getting the injunctive relief is critical. Most NDAs expressly provide for the right to injunctive relief, or at least the right to seek injunctive relief. If you see an NDA with a waiver of injunctive relief, keep your secrets to yourself.
Limitations of Liability
If you are at all familiar with contracts, you are probably used to seeing a limitation of liability clause. IT IS USUALLY IN ALL CAPS and typically excludes those mysterious “indirect, consequential, special, exemplary or punitive” damages. Since these are exactly the types of damages most likely caused by a breach of confidentiality, agreeing to such limitations means you won’t be able to recover your most significant damages.
Non-Solicitation or Non-Competition Provisions
NDAs are most often entered into before a commercial relationship or transaction has been initiated. These are not circumstances where a non-solicit or non-compete agreement makes sense. Otherwise you could find yourself with restrictions on your future business strategies based on preliminary discussions you had with a company with which you never did a deal. Save these types of terms for a definitive agreement, if ever.
Incursions on your Intellectual Property
Most NDAs provide that each party retains ownership of their own IP and that no licenses are granted by virtue of signing the NDA. But sometimes, a clever company will include some type of language claiming ownership of any “improvements or modifications” it makes to your intellectual property. Under most NDAs, the other party should not be messing around with your intellectual property. If you anticipate that the other party will need to modify or use your intellectual property in any manner other than simple evaluation, you may need a different agreement such as a Material Transfer Agreement.
And every once in a while, we see an NDA that looks like an NDA but it doesn’t actually include any promises to keep the information confidential or not to use it for their own purposes. Be sure the NDA explicitly requires the other party to hold your information in confidence and not disclose it to a third party. You should also make sure that they cannot use your confidential information for their own purposes, such as their own research and development.
So don’t assume all NDAs are what they appear. Read them closely, or have your attorney review them before signing and save us all a lot of headaches. If you have any questions, please feel free to comment below, email me or connect with me on LinkedIn.
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The blog content should not be construed as legal advice.