Potential Blind Spots In Your Non-Disclosure Agreements
Risk & Compliance
The non-disclosure agreement, or NDA, is an important tool for many businesses. A properly organized, signed NDA helps protect the company’s intellectual property, such as inventions, new business ideas, financial and marketing data, and other confidential or proprietary information.
The NDA document itself may be fairly straightforward. The essential elements (parties, definition of confidential information, confidentiality obligations, exceptions, and terms of the agreement) can often be listed in a few pages. Don’t let the relative simplicity of an NDA lead you to overlook these blind spots.
The NDA Is not Signed and Dated
This may seem obvious, but it’s a surprisingly common mistake. Simply preparing an NDA, or even showing it to the other party, does nothing to protect your intellectual property. To create a binding agreement, all parties must sign and date the contract.
The Party’s Name Is Wrong
“Close enough” doesn’t work when it comes to legal agreements. When drafting an NDA, make absolutely sure that you have the full and correct legal name for the individual or company. Misspelling a name, omitting “Limited,” or similar mistakes can invalidate the NDA. If a company uses different names for legal agreements versus customer-facing activities, you can also end up with a worthless NDA. This is also an important time to double-check that the person signing has sufficient authority to enter into a binding legal agreement.
Confidential Information Is too Vague
Companies drafting NDAs want to protect as much of their internal information as possible. Opting for broad language can backfire. If an attempt to cover everything results in vague language, it can be difficult to enforce the NDA successfully.
Instead, consider what are the specific types of information it’s critical to protect. Listing “business strategies, trade secrets, financial information, and potential ventures,” for example, provides a clearer idea of what information is protected than “confidential information” as a catch-all term. It’s also important to clarify whether the NDA covers written information only, or both written and oral disclosures.
No Exceptions Are Listed
It can actually be to a company’s benefit to clearly list exceptions to the confidentiality rule. A court is more likely to strike down an NDA it deems too onerous or burdensome on the signee. An NDA that attempts to protect information under all circumstances may cross that line. Common exceptions include information that’s already public knowledge, information the signing company developed independently, or information the signing company received from a third party.
No Attorney’s Fee Provision
Smaller businesses and start-ups often work with limited funds. If you sign an NDA with a major corporation, you may not be as well protected as you think. If the corporation were to breach the NDA, taking them to court could drain your small business’ resources. An attorney’s fee provision can make the other company liable to cover your attorney’s fees if you are in the right.
No Clear Enforcement Procedure
If an individual or company breaches your NDA, what’s the next step? Will you proceed straight to litigation, or attempt a mediation first? Legal counsel will be able to handle a breached NDA more smoothly if there is a clear process to follow. Making signing parties aware of the precise consequences of breaching the contract also encourages compliance.
Finally, be sure to save the signed NDA in a secure, easy-to-find location. Having documents on hand when it comes time to disclose any sensitive information can help ensure that all parties remember correct confidentiality protocol.
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