What is an NDA and why does it matter?

Non-disclosure agreements are important tools for any company that shares confidential information with third parties

For some companies, this confidential information may represent some of its most competitive assets. For others, the protection may be for the benefit of protecting the personal information of clients or employees. Whether working on a consulting agreement, service agreement, or negotiations for a merger or sale of the company, having a well drafted NDA is essential.

What is confidential information?

In a broad sense, confidential information is any information that is not generally known to the public or not generally known within the relevant trade or industry. Confidential information can exist in any form, including spoken, printed, or electronic mediums.

It could be information with commercial value, like trade secrets, or personal information, such as social security numbers or less sensitive personally identifiable information of users of a software or website. 

What is NOT confidential information?

Information that is already in the public domain, or becomes part of the public domain while the NDA is in effect, is not usually protectable as confidential information. For example, business filings and registrations that are searchable on a state’s Secretary of State or Division of Corporations website are not confidential information.

If confidential information is revealed to a third party, then there may no longer be an obligation to keep that information confidential anymore. Usually, a well-crafted NDA will have language that addresses this type of situation with the requirement that the information was not revealed to a third party through any act (or lack thereof) by the parties.

With an understanding of what confidential information can include, the next consideration is how to define this term in the NDA. However, the parties should be careful that this definition is not overly broad or overly restrictive. For example, an NDA that seeks to protect information that is already in the public domain could be considered overly broad and may not be enforceable.

What type of NDA is the best choice?

The two common designations for  NDAs are “unilateral” or one-way NDAs and mutual NDAs. A unilateral NDA is most useful where only one party is sharing or disclosing confidential information. For example, an employee might sign a unilateral NDA as a promise not to share any confidential information they may learn during the course of their work.

In contrast, a mutual NDA is useful where both parties are engaged in a discussion or relationship that requires the sharing of confidential or proprietary information. There may even be one party that is disclosing more than the other.

For example, businesses that are engaged in negotiations for a corporate financing, merger or acquisition will need to share a large amount of confidential information. These parties want to ensure that even if the transaction is not finalized, their information will still be protected.

An NDA can be tailored to favor either the disclosing party or the receiving party, so it is important to read carefully.

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