Archive for September, 2014

A Few Key Issues In Review and Approval Of Non-Disclosure Agreements

Wednesday, September 17th, 2014

By Thomas C. Grella

The following is not intended to be a comprehensive review of non-disclosure agreement (sometimes also referred to as “confidentiality agreements”), and should not be taken as an indication that these are the only issues to be concerned with in review of such agreements.  Even though it is always recommended that non-disclosure agreements be reviewed by a qualified licensed attorney, to follow are a few common issues or concerns regarding typical non-disclosure agreements that you might consider as you make your preliminary review or analysis.

  1. Unilateral vs. Bilateral Agreement. There are basically two types of agreements.  The unilateral agreement is one where one party will be providing the information, and the other will be receiving information, and the party providing information is the only party with an interest to be protected in the agreement.  The bilateral (or mutual) agreement is used where both parties may be providing information to each other (such as, for example, in merger negotiations) and therefore both parties have an interest in protection. This type of agreement between parties may come in the form of stand-alone agreements (a document entitled “Non-Disclosure Agreement”, for instance), or they may come as one provision, or a series of provisions, found within a larger contractual agreement (such as an employment agreement or an asset purchase agreement).  The determination of which type of agreement to use (unilateral or bilateral) will depend upon the circumstances, however presentation of a unilateral agreement from the other party in a contract negotiation should not be assumed to be the correct form that is required.  Many situations may seem like circumstances where only one party needs confidentiality protection, however each party should closely examine their interests, and if there is any doubt, this is one type of agreement where the party with a greater interest in obtaining protection is likely to allow an agreement that reciprocates protection.
  2. Description of Confidential Information.  In many cases, the definition of the “confidential information” to be protected can be the longest paragraph in a non-disclosure agreement.  Though it is fair for the party desiring protection to include all of the possible types of information that might be disclosed, those being are asked to sign these types of agreements should be careful to assure that the descriptions are not too broad or vague.  
  3. Covenant of Non-Use.  Each non-disclosure or confidentiality agreement can be expected to have terms where one or both parties agree not to disclose to third parties information obtained, and to return information received once the term of the agreement is terminated or expires.  Agreements among competitors (such as in merger negotiations) should also contain terms where the parties agree that they will not use the information disclosed to them by the other party.  In addition, but related, every non-disclosure agreement should clearly spell out the purpose of the disclosures (ie. merger negotiations, employment negotiations, business sale, etc.); and it should be a narrowly defined purpose.  A properly defined, and very specific, purpose provision might also be the basis for restricting unintended future use of information by a competitor. 
  4. Exclusions from Disclosure Agreement. To follow is a typical provision that is usually found in every agreement:

“Confidential Information shall not include any information which (i) is or becomes available to the public other than as a consequence of a breach of any obligation of confidentiality; (ii) is or becomes known, from a source other than the Party hereto to which it belongs and without breach of any obligation of confidentiality by the other Party hereto prior or subsequent to its receipt from the Party to which it belongs; or (iii) is independently developed by either Party hereto without reference to any information disclosed pursuant to this Agreement.”

 These types of exclusions are very broad. It can be difficult to prove they do not exist. A party to such an agreement might desire to protect its interest by adding one or more conditions to the operation of the exclusions.  Some conditions to consider as requirements to be provided to the party otherwise protected by the terms of the Agreement prior to disclosure are: 1) prior notice of any proposed disclosure, 2) submission of documentary evidence proving a basis for application of the exclusion, and 3) a requirement that the party making a disclosure be able to show that the exclusion was necessary and is defensible upon some elevated evidentiary standard of proof.       

Please feel free to contact any one of our Corporate Practice Group attorneys  if you should be in need of help in interpretation or review of a non-disclosure agreement (or a confidentiality provision within a legal document).