Unfortunately many companies treat non-disclosure agreements (NDA) like a piece of second hand clothing. Dusted off and made good for the current use, lent out or borrowed from someone else, patched a bit here and there and then packed away never to be considered until the next time they are needed.
Almost every business, and particularly those in finance or the start-up technology space, needs a good quality non-disclosure agreement that is considered and used when a new deal is being considered.
Most company directors would agree. But would they be able to explain why?
- To identify just what information is to be disclosed
This might seem trite, but we have seen NDAs which purport to cover a specific piece of information but are either so broad as to be almost meaningless, or specific in a shopping list approach that renders an analysis an extremely painful experience.
A good NDA should be revised when issued to cover just what confidential information a business intends to disclose – no more and no less.
- To identify what that information can be used for
An NDA needs to be deal-specific in that it should provide for the use of the confidential information disclosed only for a prescribed purpose.If too general a purpose is identified then the NDA may risk being, for all practical purposes, unenforceable.
- To create a proper expectation of confidentiality between those involved
This reason also seems trite, but most contracts at their heart exist to ensure that all parties to a transaction know how they should behave in a situation.Agreeing as to how things are to occur is always easier at the start of a discussion than waiting until a dispute is looming.
Also, the identity of the parties on an NDA is critical. If you don’t have the correct parties named on an NDA then it isn’t worth the paper (or PDF) it is written on. Check that ABN, run a company search, take a copy of the identification of a person you are dealing with. An ounce of prevention here is worth many tonnes of cure.
- To give a remedy if information is leaked
Litigation is expensive, but so is the loss of confidential information.One of the primary legal reasons for having an NDA is to set up the disclosing party’s position in case an urgent injunction is required.
There are a myriad of situations where an injunction against the disclosure of confidential information might be needed and when that occurs your legal team will need to move extremely quickly and a proper NDA gives an edge in getting an injunction ready for court.
- To protect the disclosing party for loss and damage and legal costs
Your NDA should have a clause covering off what is to occur if an injunction cannot be granted and who is to ultimately be responsible for payment of legal costs. This can assist in both avoiding disclosure (by making the potential consequences even more unpleasant) and also to provide additional leverage in any negotiations surrounding a larger dispute.
When so many companies have their information as a primary driver of value and revenue, it is critical that they ensure any disclosure of that information is properly protected with a suitable NDA.