6 Issues to Consider When Reviewing or Drafting a Non-Disclosure Agreement

If you want to share commercial information with a future business partner or another company, a non-disclosure agreement (NDA) can help ensure that this information remains confidential. This relates to ventures in which parties must access sensitive information before making an informed decision, including:

• a new business idea you want to discuss; or
• an investment opportunity you want to review.

This article looks at the six most important things to consider when reviewing or drafting an NDA.

1. Is the NDA Mutual or One Way?

If both you and the other party plan to share confidential information that needs protecting, the NDA can impose obligations on both parties not to share the information. This two-way agreement may make the deal more palatable for both parties, rather than requesting a one way NDA. However, if you are the only party disclosing information, a one way NDA may be more appropriate.

2. How Long Is the Agreement? 

Your NDA should outline the duration of the agreement. This is important as both parties must clearly understand how long they are required to keep the information confidential.

3. NDA Confidentiality Obligations

It is essential that you clearly outline the obligations of each party under the NDA in specific terms and conditions. This typically includes a promise to:

• not share the information with any third party;
• treat the confidential information using the same care and respect as the party sharing the information;
• only use the information for the purpose provided;
• protect the information from unauthorised disclosure and notify parties to the NDA of any breaches;
• only share confidential information to personnel on a need-to-know basis.

4. Definition of Confidential Information

As you are sharing information with another party, you want your definition of confidential information to be as broad as possible. This definition can change from agreement-to-agreement. The definition you agree on will depend on the needs of each party to the NDA. You will want it to cover all types of documents and material so that you are as protected as possible. This will include material like: 

• commercially sensitive documentation;
• ideas;
• plans and designs discussed during meetings;
• business models;
• notes; or
• records. 

The definition must cover the information that you are most concerned about becoming public.

5. Return of Confidential Information

If you are sharing confidential information for a certain period, you will likely want all records of the information returned or destroyed when the term of the agreement finishes. You will also want this certified in writing.

6. Damages and Indemnity

If the other party breaches your NDA, you may suffer losses due to the disclosure of your confidential information. Your agreement should outline what remedies will be applicable in this event. Monetary compensation may not be sufficient in the circumstances, so you may request that a court order the other party to stop the continued release of confidential information. This clause must protect you to the maximum extent possible so that you are appropriately compensated in the event of an information breach.

Other NDA Considerations

The purpose of your NDA is not to: 

• protect your intellectual property (IP); or
• be a complete agreement governing your terms and conditions when engaging with a business partner or contractor.

Your terms and conditions can deal with IP and your business relationship in more detail. This will be an essential document if you progress further with the relationship between you and the other party.

Key Takeaways

You want to make sure your NDA is thorough and protects you when you disclose information. This involves determining whether a mutual or one-way agreement is most appropriate for your circumstances. Then, it is vital that you clearly outline the period in which the information must remain confidential and the obligations of each party to ensure that it remains secret. It is equally as essential to ensure that:

• your agreed-upon definition of confidential information covers all material you are concerned about;
• any records of confidential information will be returned or destroyed upon the end of the agreement; and
• you will be fairly compensated for any breaches to the agreement.

A good place to start is by visiting IP Australia’s online IP contract generator. If you would like assistance drafting or reviewing your non-disclosure agreement, contact LegalVision’s contract lawyers today on 1300 544 755 or fill out the form on this page.