4 critical items to consider in a non disclosure agreement [before you sign it].
1. Is the definition of “confidential information” specific enough to be workable? For the non disclosure agreement to have any value, both sides must understand what is being protected. I routinely see non disclosure agreements that have wonderfully frightening all inclusive definitions of “Confidential Information.” For example, consider this definition:
The parties acknowledge and agree that all practices, procedures, business models, documents, photographs, marketing and sales plans, financial information, costs, pricing information, customer information, customer lists, and all methods, concepts, know-how or ideas in or reasonably related to the business of [redacted]
Wow, that covers just about everything ever created by the business or which the business even thought about creating. This type of definition has the potential to allow the disclosing party to use the non disclosure agreement as battering ram for years into the future. The definition should be limited to the information and area in which the parties are collaborating. Protect what is actually private, which leads into the next point.
2. Is the material being protected actually worthy of protection? Although technically parties to a non disclosure agreement can designate anything they choose as “confidential”, it makes practical sense to only protect the items that are actually private and proprietary. It is material that a business protects through reasonable means and that actually adds value to the business. Protecting material that is quasi-public or ancillary to your primary business interest leads to precisely the type of murky non disclosure agreements discussed above.
3. Which state’s law is the agreement going to be controlled by? While there may be some common legal principles shared by most states, if you think your agreement is covered by Oklahoma law and it is actually covered by New York, you are probably in for some surprises. A given state’s law on contracts is the product of value judgments made by the legislative and executive branches of state government. The values Oklahoma holds dear may be quite distinct from those cherished in New York.
4. Who is allowed to see the confidential information? It is standard for executives and employees who are directly involved in the project to be included. However, if you have consultants who need access to the material, make they are included. Also, don’t forget about your attorney: he or she may be involved in drafting future agreements between the parties to the non disclosure agreement and will need to be included.
Get a handle on these points before you sign the non disclosure agreement because mistakes in these areas have painfully long lives.