Non-Disclosure Agreements- Protecting Business’s Proprietary Information

7. Ownership of Information

Although it may seem like stating the obvious, it is important to re-affirm in the NDA  that the information disclosed under the agreement remains the property of the disclosing party, and that the recipient acquires no right, title or interest, nor any form of license in the information disclosed.

8. Warranty Concerning the Information

The NDA should provide that the disclosing party does not warrant that the information disclosed is true or genuine.

The recipient who relies on such information to make business decisions should do so at its own risk.  This clause is particularly important when a NDA is signed prior to the disclosure of confidential financial information that may be used to assess the potential value of a business alliance.

Similarly, the NDA should clarify that the disclosure of proprietary information should involve no warranty on the disclosing party’s part that the potential business transaction, in preparation for which the proprietary information is exchanged, will take place.

9. Boilerplate Provisions

Like any other agreement, an NDA must specify the applicable law and the jurisdiction that will govern any potential disputes concerning the agreement’s interpretation, application, and enforcement.

10. Effectiveness of NDAs

Although NDAs are advisable and should be used regularly as a matter of a business’s standard operating procedures when dealing with potential business partners, NDAs are far from full proof, and have their limitations.

Firstly, it is important for the disclosing party to ensure that its confidential information is not disclosed in a public forum.

For instance, the filing of a patent, which can disclose a proprietary technology, may undermine the enforceability of a NDA that is designed to restrict the disclosure of just such knowledge.

Similarly, if trade secrets are intended to be the subject of a NDA, the disclosing party should make sure that they are, in fact, protectable trade secrets.

A proprietary formula that is sitting on a Secretary’s desk, and so available for all to see, may also not benefit from NDA protections.

As such, the restrictions imposed on a recipient of confidential information by a NDA may only be as viable as the effort on the part of the disclosing party to keep such information confidential.

It is not merely a matter of marking a document with a “Confidential” stamp, but in implementing policies and procedures intended to identify information that should be proprietary and erecting barriers to its unauthorized disclosure.

Secondly, the damage caused by an unauthorized disclosure may be very difficult, if not impossible, to prove.

Any attempt to foresee damages by the insertion of a liquidated damages clause will also be confronted with the difficulty of assessing and ascertaining damages in advance.  So even if parties enter into a NDA, and a breach of that agreement can be ascertained, it may still be difficult for the disclosing party to demonstrate that it has been damaged by the breach.

11. Duration of NDAs

The duration of a NDA is most often related to the nature of the information, itself, and the nature of the related, or underlying agreements, governing its use.

A NDA intended to cover information concerning a product with a short lifecycle, like a food product, may only have a term of a few months while other types of products, like computer software, may require the NDA to be in force for a number of years.

Where a NDA is intended to cover information relevant to a trade secret, the restrictions on disclosure could last forever.

The Takeaway

NDAs are an important tool for protecting a business’s confidential, including proprietary, information.

NDAs should be made mutual in appropriate cases and should be drafted and reviewed by an attorney to make sure that the language is relevant to the type of information that the parties plan on exchanging.

However, NDAs have their limitations, and may not be full proof in guarding against the disclosure of confidential information to unauthorized parties.

The protections afforded an NDA are dependent both on the diligence deployed by the disclosing party in treating its own confidential information appropriately, and on its effectively evaluating the bonafides of the business partner to whom confidential information is expected to be disclosed.

I would like to thank Louise Valiquette, Esq., who helped me draft this article. Louise, who is based in New York and has an active cross-border practice with Canada, concentrates on international corporate law, and has considerable experience in drafting non-disclosure agreements.

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