OVER THE LAST FEW YEARS, the
standard form of nondisclosure agreement (NDA) has undergone a revolution. The
revolution has occurred in part because scientists and engineers are more savvy
about protecting ideas and new technologies. It has also occurred because
smaller companies are finding more and better ways to create synergies with
larger companies. The best NDAs strike a balance between encouraging the
parties to share while also protecting the information from unauthorized use.
To strike this balance better, it helps to have a few tricks up your sleeve.
One misconception is
that NDAs must contain certain exclusions as to what constitutes confidential
information. Although these exclusions commonly appear in most forms of NDAs,
no law or rule requires they be part of the agreement.
The four basic exclusions
occur when (1) the disclosed information is already generally known to the
public, later becomes generally known or otherwise is in the public domain; (2)
the receiving party already lawfully possessed the disclosed information; (3)
the receiving party already had received the disclosure from a third party
without an obligation of confidentiality; and/or (4) the receiving party
independently develops the information without using the disclosing party’s
information.
Trade secret laws in the
United States are essentially intended to act as a floor.
In other words, the
parties are free to enter an agreement that, as between them, contains stricter
obligations of confidentiality. The exclusions, of course, tend to favor the
receiving party. This is because the receiving party no longer has to treat the
covered disclosure as confidential. In contrast, an NDA that does not contain
any of the four exclusions would, arguably, favor the disclosing party. The
next time you draft or review an NDA, consider whether you need one or more of
the four exclusions. Your approach may vary depending on the relative leverage
of the parties, whether you wish to favor the party disclosing or receiving the
information, and whether you anticipate seeking injunctive relief, damages or
both should a breach occur.
Consider the following
uncommon but helpful provisions for your next NDA. If you are the disclosing
party, try pushing for a “thou shalt not design around” provision. This
provision states that the receiving party may not reverse engineer or design
around any of the confidential disclosures. The prohibition against designing
around may later prove to be a strong incentive for the receiving party to do
business with the disclosing party.
If you are seeking a
more equitable approach, consider including a “feedback” clause. This clause
allows either party to provide the other with feedback voluntarily and it
disclaims any confidentiality obligations for the party receiving the feedback,
absent a separate written agreement. Either party is free to use the feedback
however it likes.
As yet another
deceptively simple example, consider an attorneys’ fees clause if you are
primarily in the disclosing position. This clause usually favors the disclosing
party because that party is the one most likely to sue under the agreement when
the receiving party breaches it.
You will always be in
better shape if you think about whether any particular provision in an NDA
favors the disclosing or receiving party. Consider real-world scenarios that
may occur if the receiving party breaches the agreement.
Remain mindful of the
purpose of the NDA and strike the balance that works best for your company or
your client.
As featured in
Seattle Business
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