NDAs are entered into on a regular basis. This may be in relation to a potential transaction, advice sought or potential partnerships formed. The common ground is that there is sharing of information that parties wish to protect and care should be taken to ensure that the information is adequately protected.
Some common features and things to know about NDAs are:
- Always assess whether the NDA is for mutual disclosure or only covering one party as the disclosing party.
- The term of the NDA and duration of the obligations to keep the confidential information confidential may differ. This must be checked in the context of the nature of the information.
- Parties may want a longer period or even a never-ending period for highly confidential information. The commercial importance of the confidential information must be considered.
- The NDA must clearly define what information is considered confidential information and must relate to what is actually being disclosed in respect of a potential transaction or discussions. A cut-and-paste shopping list of all possible information is to be avoided.
- Information that is already in the public domain, already received by the receiving party prior to entering into the NDA, or information that subsequently becomes public knowledge through no fault of the receiving party is not considered as NDA-protected confidential information.
- The obligation to destroy or return the confidential information may be included in the NDA upon notice after the information is no longer needed, or upon the occurrence of an event, or upon conclusion of the negotiation. A party may need to keep but not use disclosed information if required by law. Bear in mind that the total destruction of electronic information is not always possible.
- NDAs may include indemnities against the consequences of unlawful disclosure. However, many institutions exclude indemnities due to the subjective nature of an NDA and the difficulty in establishing the source of the leak
- NDAs can permit disclosure to permitted parties such as employees of the receiving party or the receiving parties’ professional advisors. Some NDAs extend its protection to group companies of the disclosing party. If this is the case the NDA must include a clause requiring the signatory to bind the non-contracting parties to the terms of the NDA.
- The information provided under the NDA is expressly not warranted to be accurate or complete and the NDA should provide that the disclosing party will not be held liable for any losses, damages or costs suffered as a result of any non-deliberate inaccuracies.
- Always check the consequences of a breach to ensure that there are no unusual or restrictive provisions in the event of a breach. Remember that a breach should not result in cancellation of the NDA because that will defeat the purpose.