A confidentiality agreement, also known as a non-disclosure agreement or NDA, is often the first step in a business transaction or employment relationship that involves sensitive information. In its simplest form, an NDA is an agreement by one or both parties (often called the “discloser” and “recipient” as applicable) not to disclose confidential information received from the other party to the agreement. In some cases, NDAs are more broad and include, for example, language that one party will not circumvent the other party in a transaction, solicit its employees or steal its trade secrets.
[Note: This post was written while I was a practicing attorney running a diverse solo law practice, and it is one of a small number of “legacy posts” that I have retained on the site. When published, this was one of my most popular posts. Since April 2015, I have been working as an executive coach and writer, and I am not currently available for legal engagements.]
NDAs often have highly-technical legal language like the following (translation into plain English below):
“In consideration of your involvement in a possible transaction (the “Transaction”) relating to [Name of Company] (collectively, with their respective subsidiaries, the “Company” or “we” or “us”), the Company is prepared to make available to you certain information concerning the business, financial condition, operations, assets and liabilities of the Company, including information which may be non‑public, confidential or proprietary in nature. As a condition to such information being furnished to you and your Representatives (as hereinafter defined), you agree to treat any information (whether prepared by the Company or its representatives or otherwise and irrespective of the form of communication (i.e., whether written or oral)) which has been or is furnished to you or to your Representatives already or in the future by or on behalf of the Company (collectively, the “Information”) in accordance with the provisions of this agreement (this “Agreement”), and to take or abstain from taking certain other actions as hereinafter set forth.”
The above paragraph essentially means, with some nuances, that, “if we give you certain information, you will comply with this agreement.”
NDAs are generally short documents, from one to five pages or more depending on the size, industry and inclination of the parties, the jurisdiction governing the agreement and the nature of the information being disclosed. In most instances, negotiations are and should be judicious and prompt so that, once agreement is reached, the business deal, investment or relationship can go forward as intended. Sometimes, however, negotiations take weeks or months because the parties do not see eye-to-eye on the major points, one party has unreasonable demands or a well-meaning but incompetent attorney bungles the process. Unfortunately, legal ineptness in the field of NDAs is more common than one might imagine, since lawyers often fall in love with the negotiation process and a preferred “turn of phrase” rather than maintain the proper perspective that the NDA is simply an appetizer to the main course.
An experienced and skillful NDA attorney knows how to cut through the words on the page and drill down to the significant point for a particular client. An incompetent one simply works from a form or (worse) hampers the process by not understanding, knowing or caring about each party’s leverage and how to negotiate significant issues. Bad lawyering not only slows the NDA negotiation process but makes the business people (who retained the lawyer) appear inexperienced and unable to see the big picture. In the worst case scenario, it can lead to opportunities being missed or business relationships being strained or severed.
Finding the right attorney to negotiate NDAs for your firm can be a challenge. They are often short and straightforward agreements that do not require major legal “firepower”, yet they require close attention by a careful reader so that nothing is unnecessarily given away in the process. One example that is common in form NDAs is that a discloser attempts to make all information shared under the agreement confidential, whether or not such information is related to another company, covered by another agreement (such as one with a third party, which may have different or conflicting provisions) or already possessed by the recipient. Another common provision states that the recipient cannot share the information received with other parties to a transaction (including, for example, joint investors, lenders or advisers), which language may be buried in the small print on a back page but nonetheless binding unless revised.
While lawsuits involving NDAs are relatively rare, it is better to have the “insurance” of a proper drafted document than take the risk of costly disputes and/or threats down the road. In addition, in many cases NDAs with the larger companies are “take it or leave it” documents, so it pays to know in plain English what you are signing.
None of the information posted on this site constitutes legal advice or forms an attorney-client relationship.