If a business contact has presented you with a product proposal or investment opportunity, they should have provided you with a non-disclosure agreement (NDA). An NDA ensures that all information about their project is kept private. Requiring you to sign an NDA may be important to the other party as they want to protect their confidential information. You should ensure that these restrictions are appropriate and don’t unnecessarily limit your ability to have commercial discussions regarding your potential involvement. This article will go through four sections that you will need to carefully consider if you’ve received an NDA.
1. What Information is Confidential?
If you’ve received an NDA, it should contain a definition of what information will be considered confidential. The other party will want to make this description as broad as possible to capture all the information that you can access. However, having a definition that is too broad means that all information that the other party has provided you might be confidential. Consequently, your ability to use the information in a way that could benefit your business plans will be restricted.
Ideally, the NDA should restrict what information is confidential to only include written information that was specifically marked as confidential when you received it. You should avoid accepting an NDA where all verbal communication is confidential. Instead, the other party should have an obligation to notify you when, specifically, verbal information is confidential.
2. What About Exclusions?
Within an NDA, it is important that there are exclusions to what will be considered confidential information. It will be frustrating if the other party claims that information was confidential when it was already public knowledge. You should ensure that, if you’ve received an NDA, it excludes a need for confidentiality for information that:
- was or will become publicly available;
- you had in your possession before you entered into the NDA;
- was independently developed by you without knowledge of the confidential information;
- you received from a third-party, and you were not aware that the third-party was under confidentiality obligations.
- the discloser advises you is not confidential or which you are permitted to disclose with the discloser’s consent.
3. What is the Purpose of Confidentiality?
If you’ve received an NDA, It is likely that the other party will have set out a specific purpose for disclosing the confidential information to you. You will need to make sure that this purpose is not too narrow or restrictive. If it is, the NDA may prevent you from being able to use confidential information to properly assess a potential investment. The broader this definition is, the more scope you will have to use the other party’s confidential information freely.
You also want to make sure that the NDA will not prevent you from competing with the other party if, in the future, you create products or services that are similar to the other party’s. Within the NDA, you may want to include a provision outlining that the other party cannot prevent you from creating products or investing in businesses that might compete with them. This is as long as you don’t use the other party’s confidential information.
4. When Is Disclosing Confidential Information Permitted?
In addition to having exceptions to confidential information, the NDA should also outline instances where disclosure is permitted. It is crucial that you ensure you are permitted to disclose confidential information to anyone who might help you assess the potential business relationship. These people include your:
- agents; and
- professional advisors such as lawyers and accountants.
However, this disclosure will likely require you to assume legal responsibility for these parties if they spread confidential information. To prevent legal issues, you should also enter into NDA’s with these parties.
The NDA that you have received should also permit you to disclose the confidential information if you are under a legal obligation to do so. If a legal authority has instructed you to provide confidential information, the NDA should not prevent you to do so. If you don’t comply with these legal authorities, you may incur a penalty.
The other party might require you to notify them if you have been legally required to disclose their confidential information. Also, if the other party requires you to assist it in trying to limit or prevent the disclosure, you should limit this to an obligation that is commercially reasonable.
Before you enter into business discussions, another party may require you to sign an NDA. If you agree to sign an NDA, you need to ensure that you properly understand your requirements under each clause. To prioritise your interests, you should ensure that:
- the definition of confidential information is narrow and requires the other party to identify when information is confidential;
- there are exclusions to confidential information;
- the definition of the purpose is not too restrictive and narrow; and
- the NDA permits you to disclose confidential information to your employees, advisers and when required by law.
If you have any questions about getting NDA, contact LegalVision’s contract lawyers on 1300 544 755 or fill out the form on this page.
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