Minimize and Manage Risk

Use Non-disclosure Agreements to Keep Things Confidential

Practically every business hires independent contractors. But rarely do they obtain non-disclosure agreements prior to disclosing information to the contractors.
If you hired a third party to develop your Web site, did you require an NDA before discussing your business procedures or methods? If you invented a new product or business process, did you obtain a NDA from manufacturers or distributors before discussions began? While this seems like common sense, most businesses fail to recognize this important protection.
A non-disclosure agreement is a legal contract between at least two parties that outlines confidential material, knowledge, or information that is to be shared between the parties, while one or both wish to restrict access to the data by third parties. The non-disclosure agreement is a contract creating a confidential relationship between parties to protect any type of proprietary information.
NDAs are often used when two or more entities are considering doing business and need to understand the processes used by the other for purposes of evaluating the business relationship. Employment contracts will often include a non-disclosure agreement clause restricting the use and dissemination of confidential, company-owned information.
Non-disclosure agreements may also contain clauses that protect the person receiving the information so that, if they lawfully receive the information through other sources, they would not be obligated to keep the information secret. The NDA typically requires the receiving party to maintain the information in confidence when the information was supplied directly by the disclosing party named in the agreement.
Many agreements are unilateral or directional NDAs. This would be used when only one party is disclosing information which is to remain confidential and requires that the other party not use the disclosed information without compensating the discloser. Another common type of non-disclosure agreement is a mutual agreement where both entities intend to disclose information that should remain confidential.
Just because a document or clause is titled ‘non-disclosure agreement’ does not mean it provides you with the appropriate level of protection. A non-disclosure agreement can protect any type of information that is not commonly or publicly known and may be very detailed; however, agreements generally address the following basic issues:
•Parties to the agreement;
•Definition of information to be held confidential;
•Time period of the confidentiality;
•Term the agreement is binding;
•Exclusions, if any, from the agreement; and
•Types of permissible disclosure, such as those required by law or court order.
Unless they can provide a compelling reason for their refusal, warning lights should go off if a party refuses to sign a non-disclosure agreement. Analyze the business relationship and the deal itself and consider whether you should walk away in the event one party refuses to sign.
To minimize and manage your risk, obtaining non-disclosure agreements should become a standard practice for your business.  Do not expose your business secrets to others without this protection.

Dawn D. McDonald is an associate with Cooley, Shrair P.C., focusing her practice on assisting clients in the areas of commercial litigation and labor and employment law; (413) 735-8045; [email protected]