Entrepreneur

Contemplating an NDA? Here’s what you need to know

(Editor’s note: Scott Edward Walker is the founder and CEO of Walker Corporate Law Group, PLLC, a law firm specializing in the representation of entrepreneurs. He submitted this column to VentureBeat.)

A reader asks:  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. Can you give us a heads-up regarding some of the key issues.  Thanks!

Answer: There are five key issues to think about with regard to your non-disclosure agreement (commonly referred to as an “NDA,” a “confidentiality agreement” or a “CA”).

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 you provide to the recipient, regardless of its form (whether written, oral or otherwise).  The recipient, on the other hand, may try to define Confidential Information more narrowly – meaning just written materials marked “Confidential” or “Proprietary.”

Exceptions to “Confidential Information”.  There are usually some exceptions to what constitutes Confidential Information as well.  For example, the other party will likely argue it should not be required to maintain confidentiality that becomes publicly available (or already is), other than as a result of their breach or is knowledge they possessed prior to signing the NDA.

They may also argue that Confidential Information should not include information it receives from a third party that’s not bound by a confidentiality agreement.  Push back on this, insisting that they have a duty of inquiry with respect to such information.

Maintaining Confidentiality and Permitted Uses.  You, as the discloser, want to make sure the NDA clearly provides that the recipient will keep the information confidential and will not, without your prior written consent, disclose it to anyone other than their representatives (such as employees, attorneys, etc.)  – and even in that case, only on a need-to-know basis.  The information should also be solely limited to dealings that are in connection with the partnering agreement.

There are often lengthy negotiations regarding the identity of recipient’s “representatives” and whether the company will be responsible for any disclosure by them.  This is particularly true in the M&A context. Disclosers of confidential information generally push hard to have representatives sign a separate NDA – or at least an acknowledgement agreeing to be bound by the confidentiality provisions in the current NDA.

Note that this could be a point of contention, due to the administrative burden.

Non-Solicitation of Employees.  One provision that’s often overlooked is a provision preventing the other company from hiring and/or soliciting your employees.  In your situation, I assume some of your employees will be working closely with the marketing firm. You’ll want to ensure they’re not poached.

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 general employment solicitations made via web postings or newspaper ads, etc. and any employees with whom it has not come into contact; and to limit their duration to one year.

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 those confidentiality obligations last?

You, as the discloser, will probably want them to run indefinitely, particularly with respect to any trade secrets.  Be ready for push back on that.

All of this being said, it’s worth noting – clearly – that for something this important, you’ll need to consult with a good lawyer to protect you.  Don’t rely strictly on the above advice.

Startup owners: Got a legal question about your business? Submit it in the comments below or email Scott directly. It could end up in an upcoming “Ask the Attorney” column.

Disclaimer: This “Ask the Attorney” post discusses general legal issues, but it does not constitute legal advice in any respect.  No reader should act or refrain from acting on the basis of any information presented herein without seeking the advice of counsel in the relevant jurisdiction.  VentureBeat, the author and the author’s firm expressly disclaim all liability in respect of any actions taken or not taken based on any contents of this post.

Photo by Raquel Camargo via Flick


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