Ask the Business Attorney: Non-Disclosure Agreements

by Scott Edward Walker on May 26th, 2010


This post is part of the “Ask the Attorney” series I am writing for VentureBeat (one of the most popular websites for entrepreneurs).  Below is a longer, more-comprehensive version of the VentureBeat post.


We’re trying to negotiate a partnering agreement with a marketing firm, and we’re worried about sharing our click rates and other sensitive information with them.  I assume we should have them sign a non-disclosure agreement, but we don’t have the money for a lawyer and was hoping you could give us a heads-up regarding some of the key issues.  Thanks!


As I discuss on my firm’s website (and this may sound self-serving but), you really need to get a lawyer involved to protect you.  Indeed, you should never sign any agreement without having it first reviewed by experienced corporate counsel.  That being said, below are five key issues to think about with regard to your non-disclosure agreement (commonly referred to as an “NDA,” a “confidentiality agreement,” a “confi agreement” or a “CA”).

1.  Scope of “Confidential Information”.  Most NDA’s will include a definition of “Confidential Information” or a similar term to address the issue of what information specifically is being protected.  You, as the discloser, should push hard to protect all of the confidential or proprietary information that you provide to the recipient, regardless of its form (whether written, oral or otherwise).  You should also attempt to include in the definition of Confidential Information any notes, analyses or other documents prepared by the recipient or its representatives which have been “based upon or derived from” the Confidential Information.  The recipient will try to define Confidential Information narrowly to include just written materials marked “Confidential” or “Proprietary.”

2.  Exceptions to “Confidential Information”.  Most NDA’s also include exceptions or exclusions to the definition of Confidential Information.  For example, the recipient will argue that it should not be required to maintain the confidentiality of information that (i) is or becomes publicly available, other than as a result of recipient’s breach; or (ii) it possessed prior to its disclosure under the NDA.  The recipient may also argue that Confidential Information should not include information it receives from a third party known by the recipient not to have been bound by a confidentiality agreement.  You, as the discloser, should push back on this and at least require the recipient to have a duty of inquiry with respect to such information.

3.  Maintaining Confidentiality and Permitted Uses.  You, as the discloser, want to make sure that the NDA clearly provides that the recipient will keep the Confidential Information confidential and will not, without your prior written consent, disclose it to anyone other than the recipient’s representatives (such as employees, attorneys, etc.) on a need-to-know basis.  You also should require the recipient to limit the use of the Confidential Information solely in connection with the partnering agreement.

There are often lengthy negotiations regarding the identity of recipient’s “representatives” and whether the recipient will be responsible for any disclosure by such representatives.  Particularly in the M&A context, disclosers of confidential information generally push hard to require the recipient to have all of its representatives sign a separate NDA or an acknowledgement agreeing to be bound by the confidentiality provisions in the current NDA.  Recipients will often push back and argue that this is an extraordinary administrative burden.

4.  Non-Solicitation of Employees.  One provision that is often overlooked by disclosers is a provision preventing the recipient from hiring and/or soliciting its employees.  In your situation, I assume that some of your employees will be working closely with the marketing firm and, accordingly, you would want to make sure they don’t poach any of them.  Disclosers are especially vulnerable in the M&A context because of employee concerns about corporate stability. Recipients often try to narrow these kinds of provisions to exclude (i) general employment solicitations made via web postings or newspaper ads, etc. and (ii) any employees with whom it has not come into contact; and to limit their duration to one year.

5.  Termination.  Typically, the recipient’s obligation to keep the information confidential will survive the termination of the NDA (even if the recipient has returned or destroyed the information).  The issue then becomes how long should recipient’s confidentiality obligations last.  You, as the discloser, will want the obligations to run indefinitely, particularly with respect to any trade secrets.  The recipient will push back and argue for a date certain (e.g., two or three years).


In conclusion, please note that most of my experience with NDA’s is in the M&A context.  Accordingly, I would add the following quick points if you are a target and are executing an NDA with a prospective acquirer: (i) the NDA should include an obligation on the part of the acquirer and its representatives not to disclose the fact that negotiations are taking place and that the acquirer is considering an acquisition of the target; (ii) if the acquirer is a competitor, certain key issues must be addressed to avoid any potential antitrust issues, including limiting the acquirer’s access to certain sensitive information (e.g., pricing, planning, marketing, etc.) and prohibiting the acquirer from contacting customers or suppliers; and (iii) if the target is a public company, a standstill agreement is imperative.

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