A lot of business comes my way from businesses and key employees fighting over whether or not the employee or (more usually) ex-employee can use/disclose things s/he learned while working. These disputes revolve around what is called a Nondisclosure Agreement or “NDA”. So I thought I would post on the key Elements of a Nondisclosure Agreement which may help avoid future problems.
Be Sure to get the NDA signed
You would not believe how many firms have very good Non-Disclosure Agreements drafted up but which they never use. Or, worse, which they use sporadically. So, of course, the one key employee never signs her NDA and, because you did have one signed by some people, it looks like you agreed not to have her sign the NDA. Oops!
NDA’s–Define Confidential Information
Every NDA should describe the types of information to be protected in the agreement. Common categories of confidential information include formulas (recipes), patterns (designs, blueprints, and specifications), compilations (customer lists, data collections), programs (software and computer code), devices (physical machines and inventions), methods (marketing, advertising and business plans, planned product announcements), techniques, or process (chemical, mechanical and manufacturing processes). If you don’t do that you could be accused of trying to declare the location of the bathroom to be confidential information.
Not all confidential information is entitled to trade secret protection. For example, confidential information discovered prior to the creation of the confidential relationship, discovered independently and discovered by reverse engineering (i.e., by obtaining confidential information in the process of disassembling a publicly available product) is not entitled to trade secret protection.
An NDA should include a provision identifying the period in which the information must remain secret. The term in which confidentiality is to be maintained is negotiable. A term of 5 years is common in the United States, and a term of 10 years is typical in Europe but they vary and should be carefully thought out.
NDAs should include provisions making the receiving party’s obligations explicit. At a minimum, a NDA should recite the receiving party’s obligations to maintain secrecy and limit the use of the confidential information. The NDA should also make explicit that the receiving party is prohibited from breaching the confidential relationship, inducing others to breach the confidential relationship or inducing others to acquire the confidential information by improper means.
Other clauses and provisions one should consider including in a NDA are listed below:
- Choice of law provision
- Forum selection/choice of venue clause
- A clause requiring arbitration to resolve disputes
- A provision entitling a prevailing party to recover attorneys’ fees in certain situations
- A provision requiring departing employees to inform their future employers about the NDA
- A clause allowing the employer to assign the NDA to a successor, affiliate, subsidiary, etc., without employee consent
- A “tattle-tale” provision requiring an employee who becomes aware of any breach of the NDA to inform the employer of the breach
- A provision requiring an employee who is uncertain if particular information is within the NDA’s definition of confidential information to request a written clarification from the employer