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Nondisclosure Agreements 101: Understanding Common Provisions

Posted by Bray Dohrwardt | May 29, 2024 | 0 Comments

Nondisclosure agreements (NDAs) are crucial components of business transactions and relationships, protecting sensitive information from being disclosed to unauthorized parties. Whether you're a business owner, employee, or freelancer, understanding the basics of NDAs and their standard provisions is essential for safeguarding confidential information. Contact the Dohrwardt Law Firm to help review, draft, or negotiate your NDA.

What is a Nondisclosure Agreement?

A nondisclosure agreement, or a confidentiality agreement, is a legal contract between two or more parties that outlines the confidential information that will be shared between them and the terms under which it can be used or disclosed. While NDAs may be used in various situations where someone desires to “keep a secret,” they are most commonly used in several business scenarios, such as when sharing proprietary business information, trade secrets, client lists, or other sensitive data.

Standard Provisions in Nondisclosure Agreements:

Definition of Confidential Information: NDAs define confidential information. This section clearly outlines the types of information considered confidential and protected under the agreement. When negotiating an NDA, take notice of the protected information types. Many companies want to include everything in the list, sometimes including publicly available information or even a consultant's independent work product that depends on multiple data inputs. An overly broad definition may be limiting and unnecessary or otherwise unduly restrictive. 

Obligations of the Receiving Party: The NDA specifies the responsibilities of the party receiving the confidential information. These may include provisions requiring the receiving party to use the information only for specific purposes, safeguard it from unauthorized disclosure, and limit access to the information within their organization. Be careful here, as it may also require particular types of data protection that require technology your company may not currently use. 

Exclusions from Confidentiality: NDAs often include provisions that outline certain types of information that are not considered confidential. This might consist of information already in the public domain or becomes public through no fault of the receiving party. Pay attention here to whether the exclusions favor one side over the other.

Duration of the Agreement: The duration of the NDA is another necessary provision. It specifies the period during which the confidentiality obligations are in effect and may also address what happens to the information after the agreement expires or is terminated. The longer the duration, the longer an organization is required to protect information. This may pose problems for companies with high turnover and little institutional knowledge. Also, suppose you have agreed to use certain technologies to safeguard information. In that case, you may be on the hook to invest in technology upgrades to comply with the agreement, which is expensive and may become obsolete. 

Permitted Disclosures: In some cases, NDAs include provisions that allow the receiving party to disclose confidential information in certain circumstances, such as when required by law or court order. This is especially important in highly regulated industries with common government data requests. You want to avoid being in a situation where you must choose between breaching your NDA or being found uncooperative with a government request. 

Remedies for Breach: This section outlines the consequences of breaching the NDA. Remedies for breach might include monetary damages, injunctive relief, or other forms of legal recourse. Typically, parties feel that a disclosure will be irreparable harm (i.e., for which no monetary damages will be adequate compensation). So, the party will ask you to pre-agree to injunctive relief in a specific court within a particular jurisdiction.

Governing Law and Jurisdiction: NDAs often specify the governing law that will apply to the agreement and the jurisdiction where any disputes will be resolved. You will want to pay attention here. Large companies will pre-select governing laws and venues where the company is comfortable litigating. For some smaller counterparties located elsewhere, litigation in a foreign venue (state or country) may be complicated and cost-prohibitive. 

It's important to note that while these provisions are standard in many NDAs, the specific terms of the agreement can vary based on the unique needs and circumstances of the parties involved. It's always advisable to consult with legal counsel to ensure that your NDA effectively protects your confidential information and aligns with your business objectives.

In conclusion, understanding the basics of nondisclosure agreements and their standard provisions is essential for anyone involved in business relationships where confidential information is exchanged. By carefully crafting and negotiating NDAs, parties can protect their sensitive information and mitigate the risk of unauthorized disclosure, ultimately safeguarding their business interests. Contact the Dohrwardt Law Firm to help review, draft, or negotiate your NDA.

About the Author

Bray Dohrwardt

As an accomplished attorney with over 22 years of experience, Bray Dohrwardt has built an impressive career, enabling business growth and commercial success for many companies from start-ups to large corporations and nonprofits. He focuses his practice on business law and energy law.

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Bray Dohrwardt is licensed to practice law in Minnesota and Texas. Please contact the Dohrwardt Law Firm to discuss how the firm can help you get business done.

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