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Non Disclosure Agreement Top 5 Checklist

Non Disclosure Agreement Top 5 Checklist
Pat Dickson - Sun Apr 29, 2012 @ 09:56AM
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It seems everywhere you turn these days someone wants you to sign another NDA (the NDA is also known as a "Non Disclosure Agreement," a confidentiality agreement, and a number of other things). But to be fair, you often insist your customers, partners, vendors, sales people, and even your employees sign what everyone calls your Standard Form NDA. The problem is you paid your outside law firm $1500 to put this 2 page document together for you. It is fine when someone signs your Standard Form NDA, but everyone else also has their own version of it they want you to sign.

In many cases, you've been signing your customers or partners NDAs in exchange for their signing yours, and you left it at that. You didn't even do any review of their Standard Form NDA. You just signed and dated it, and sent it back. After all, if you had outside counsel look at every foreign NDA landing on your desk, your legal bill would put you out of business. On some busy days you've signed as many as a half dozen of them. The good news is in most cases you are ok with this approach. Why?

How often have you seen an NDA go to court? I've been in corporate law for many years and have done a lot of real litigation. Outside officially reported court cases, I've only heard of a few cases where NDAs ended up in court, and in those cases the NDA was only a very small part of the overall litigation. It was pretty inconsequential. That being said, you should still have a lawyer look at any foreign NDA before you sign it. The one time you don't could be the 1 of 10,000 catastrophe you never wanted. Nevertheless, if you can't afford a lawyer and have no option but self review, there are 5 things I always look for first. Keep in mind this is a general list and I've left out a lot of concerns and issues. So, now that you have my disclaimer, here is my NDA Top 5 Checklist:

1. Name and Location: Are all the legal party names listed properly, as well as their locations? Are all the parties you want to bind to this NDA included? In many cases the NDAs you sign are mutual so you want to make sure everyone is bound. If you don't know if you have the right names and locations, call whomever gave you the NDA and ask for a copy of whatever certificate or good standing document they possess which shows their legal name and location or headquarters.

2. Mutuality: Sauce for the goose. Does the NDA say that all parties to it are bound to the same terms? If not, a quick fix is to ask the person providing the NDA to make it mutual. Make them do the work. But, if they refuse and tell you to do it, you can always add a term equivalent to:

"Notwithstanding any other term in this NDA, all obligations listed herein are mutual, e.g. so that if one party is required to maintain secrecy of the other party's information, all parties are required to maintain the secrecy of the information of all other parties." 

3. Specifically List What is Secret: Think about what you are trying to protect and list it out in a separate addendum if you must. Do you have a trade secret, like a special recipe that's a pillar of your business? Be sure to include it in the NDA. In many cases, doing this will cause the other parties to make their lists too, and oftentimes you'll discover you don't always agree on what is secret and what is not.

4. Non Competition: Watch out for this one. Sometimes you will catch someone trying to sneak in a term saying you can't compete with any of one of the other parties for the next 5 years or something like that, e.g. saying you can't solicit Party As customers, or sell certain of your products or services in Party Bs territories for a given number of years, etc. If you find anyhing like this, strike it out, or begin a dialogue on the issue.

5. Injunctions and Damages: Read the sections regarding what happens if someone breaches the NDA. You especially want to make sure there is no language in the agreement saying your business can be stopped dead in its tracks just because one of the parties files a court action against you. Strike anything like this out of the NDA. Better yet, if you see any really dangerous looking sections involving what happens to you if you are accused of breaching confidentiality, this is one of the times calling your outside counsel is a very wise thing to do.

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