Confidentiality – the ABCs of NDAs

Confidentiality – the ABCs of NDAs

Confidentiality obligations are an ever present part of our working lives. We owe duties of confidentiality to our employers and our clients or customers. Whether you produce a manufactured product or provide a consulting service you are likely bound by written obligations of confidentiality. Sometimes these obligations operate in the background – the specifics being unknown to us as individuals. In other instances they are front and center – part of the first step in our interactions with a business partner. However you confront them understanding the nature of your confidentiality obligations is an essential part of today’s business environment.

The basic keys to understanding confidentiality agreements can be broken down to a few simple elements. This guide will help you structure your review of these documents so that you can quickly focus on your obligations and track them going forward:

What’s in a Name? Confidentiality agreements can also be titled secrecy agreements, proprietary information agreements, and non-disclosure agreements (“NDAs”) – all can seek to accomplish similar goals and contain similar provisions.

Who are the Parties? Take a moment to confirm that the parties are correctly identified and to understand which party is the recipient and which the discloser in a unilateral arrangement. Many NDAs are drafted as mutual or reciprocal obligations. In mutual NDA’s both parties receive and disclose confidential information.

Three Key Questions: Once you have made an initial assessment of the parties and determined if the NDA is unilateral or mutual (reciprocal), then you can focus on three simple questions:

1. What is the Scope / Purpose? In order to track your obligations you need to be able to identify the subject matter and/or purpose of your obligations. A narrow description of the subject matter or purpose will help to limit your exposure to a possible breach of your obligations. A marking requirement can also narrow your exposure.
2. Are the Standard Exceptions present? You should see either three or four “standard exceptions” that narrow your obligations by excluding certain information. The exact wording of the standard exceptions will vary (example below):

(a) is or becomes generally known or available to the public through no fault of Recipient;
(b) is rightfully in the Recipient’s possession, or known by it, free of any obligation of confidence, prior to the Company’s communication thereof to Recipient;
(c) is rightfully obtained by Recipient from a third party authorized to make such disclosure without restriction; or
(d) is developed by the Recipient independently of and without reference to any of the Company’s Confidential Information or other information that the Company disclosed in confidence to any third party.

3. What are the Term and the Time limit? Best practice is to include a reasonable time limit on your obligations so that they end on a specified date. Most mutual NDAs contain time limits but many unilateral NDAs do not. The term of the agreement is not the same as the time limit on the obligations. The term limit is the time period within which confidential information may be disclosed or the term of the “agreement”. The time limit is the duration of the recipient’s confidentiality obligation with respect to the information that has been disclosed to it.

A good system of recordkeeping will serve you well in keeping track of your obligations. Recommended practice is to maintain separate files for NDAs and create a database to record the parties and three key issues.

Maintaining confidential information received under an NDA in accordance with the same good and reasonable methods you should use to protect your own information is often a strong defense to an alleged breach. Mistakes can happen even with good intentions and systems. So developing a culture of compliance built on understanding is the best way to mitigate unintended disclosures.

Please download the Pazar Law Confidentiality Agreement Guide for your use.

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