Non-Disclosure Agreements – A Quick Guide to Faster Review

Business - "Hey lawyer - I have this NDA for a new prospective customer that we need to sign. Can I sign it as-is?

Counsel - "Unfortunately, no. There are several issues that will need to be addressed. I will review this next week."

Business - "I am going to lose this deal - we need to sign ASAP."

For business and legal teams alike, the frequency of this conversation can be frustrating. From the business' perspective, these one to three pagers can be a huge roadblock for getting to the next step of a new relationship or deal. For legal, these seemingly simple documents, albeit not frequently litigated, can put the business' proprietary information at risk or place burdensome restrictions on how the business is allowed to handle the information.

Companies across industries may be reviewing thousands of these agreements a year. Legal departments must be business-minded and strive for efficiency and standardization. Here are five tips to speed up your review:

Who are you contracting with?

Always check for the inclusion of “Affiliates” to decipher who you are contracting with. From the view of the receiving party, will affiliates be sending confidential information? From the disclosing side, if you disclose to the named entity, does that mean you are also disclosing to their affiliates, as well? These are important things to keep in mind.

What are you sharing?

The definition of Confidential Information (“CI”) is the bread and butter of an NDA. Knowing what will be included within the protections of the agreement, and arguably more importantly, what will not be included, is essential for disclosing parties to protect their information, and for receiving parties to not live in breach.

Ensure that your definition of CI is broad enough to encompass the information that will be shared, but also narrow enough not to include disclosures outside the scope of the agreement at hand. Typically, 4 categories of information are excluded from the confidential information definition in market standard agreements:

1. Publicly known,

2. already known/possessed by recipient as evidenced by records,

3. either disclosed by a third party not in breach of confidentiality or rightfully obtained from a source, and

4. Independently developed by the recipient.

Parties will expect to see these exclusionary categories in every NDA. They are also sometimes used for the confidentiality term, as discussed below.

Why are the Parties Sharing Information?

The purpose statement is one sentence that describes why the parties are sharing information and is often overlooked. Depending on how broad or narrow your purpose statement is will determine how much information falls within the definition of CI. A purpose statement that is too narrowly drafted may not offer protection over all the information that the parties intended. Conversely, a purpose statement that is too broad may protect more information than the parties anticipated, leaving the receiving party at risk of breach.

Who are you really sharing CI with?

For many NDAs, the "Representatives" definition is one of the most important terms in the agreement. This definition includes the additional parties that CI may be shared with. Typically, these parties include: (1) affiliates; (2) employees; (3) agents; and (4) consultants. However, additional parties may be included depending on the industry.

For receiving parties, ensure this definition is broad enough to share CI with the necessary parties (i.e. perhaps "reinsurers" for an insurance underwriting NDA, or "subcontractors" for certain vendors). For disclosing parties, does the list of authorized representatives fit within the comfort level of the business? Is there a chance that a competitor could fall within any of the listed categories?

Finally, it is market standard for the receiving party to guarantee its representatives' compliance with the terms of the NDA. Any breach of a party's representative should be considered a breach of that party.

How long is the Confidentiality Term?

How long CI will remain confidential is an important thing to consider for both the receiving and disclosing parties. If you are the receiving party, consult with your business partners - how long is the enterprise comfortable complying with the terms of the NDA? From a compliance standpoint, perpetual confidentiality terms can be very difficult to track, especially for larger organizations. Market standard terms (contract and confidentiality tail) typically range from one to five years.

Conversely, disclosing parties will want protection over their confidential information for as long as possible. If a market standard length of protection does not seem adequate, consider hinging the confidentiality term on when all CI falls into an exclusion, as discussed above.

If you are interested in creating further efficiency in your NDA review, start a trial now to receive access to our standard NDA playbook (and many more!).

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