17 Feb Non-Disclosure Agreements
What Is A Non-Disclosure Agreement (“NDA”)
Non-disclosure agreements (sometimes referred to as “NDAs” or “confidentiality agreements”) are contracts to protect a company’s valuable intellectual property from being used by actual, or potential, competitors. In other words, the purpose of the agreement is to ensure that one, or both, of the parties entering into it does not reveal confidential, protected business information, or does not otherwise use that information in an unpermitted manner.
Non-disclosure agreements are increasingly common, and companies that are engaging outside parties often require those parties to enter into such agreements. The purpose of the engagement could be anything from a prospective sale of the company, discussions concerning a joint venture or partnership, or even recruiting discussions with consultants, potential independent contractors or higher level employees.
The frequent movement of employees from company to company makes them more common in the employment context. One business sector in which they are especially common is the high tech sector.
When Should You Have A Non-Disclosure Agreement
Some of the most common occasions when a person, or a business, might be asked to enter into an NDA include the following:
-Purchase or sale of a business
-Discussions with outside investors
-Strategic partnerships or joint ventures
-Discussions or meetings with potential service providers, such as consultants or independent contractors
-Discussions or meetings with potential higher level employees
Types of Non-Disclosure Agreements
Non-disclosure agreements come in two forms: unilateral or bilateral (or “mutual”). In unilateral agreements, only one of the signing parties agrees not to disclose certain information, while the non-signing party is the one seeking to protect its confidential information. A common example is where a business owner is in talks with a potential higher level employee or contractor, and seeks to protect that person from revealing information he may learn during those talks to outside sources.
Bilateral non-disclosure agreements occur where both parties have confidential information that they each need to protect. A good example is where two companies are in partnership or joint venture discussions, each seeks to protect their own valuable confidential information from being used outside of those discussions, particularly in the case where the joint venture or partnership is not successful.
Protected Confidential Information
Non-disclosure agreements need to explain, define, or otherwise reference, the type of information that is being protected. Some common examples include the following:
-Software codes and designs
-Engineering designs and drawings
-Employment lists, contact information or compensation schedules
-Price lists or pricing methodologies
Depending on the situation, other types of information may need to be protected, and each situation is unique.
Essential Terms of Non-Disclosure Agreements
Apart from the references to the confidential information being protected, a non-disclosure agreement also should contain terms clearly explaining how the confidential information may be used. There should be an explanation about when any materials must be returned; there should be language allowing for protective orders in the case of a compelled disclosure (a subpoena, for example); the term of the agreement should be explained; and remedies, in the case of a breach of the agreement, should be explained. Other standard contract terms, such as a governing law provision, should also be included.
In general, unilateral non-disclosure agreements tend to be shorter, while bilateral agreements tend to be longer. Some unilateral agreements are as short as one page.
Non-Disclosure Agreement Templates
There are many templates available for free on the Internet. First time drafters should be cautious not to simply adopt these templates without ensuring that they are appropriately modified for the specific set of facts pertinent to the business that is seeking to protect its confidential information. After all, the last thing a business will want is to have an unenforceable non-disclosure agreement, and to put its confidential information at risk, especially after having worked so hard to develop that information.
If you need legal assistance with any issues related to non-disclosure agreements, or if you have any other legal questions concerning a startup or small business, particularly in or around Portland, Oregon, please contact us.
Author: Andrew Harris
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