Given the exposure to industries such as hospitality, fashion, information technology, and science, among others, at Cea Legal, we are often hired to draft non-disclosure agreements (NDAs), which are contracts establishing a confidential relationship, when the parties acknowledge that sensitive information they may obtain in the course of the business relationship should not be disclosed to any other party.
Simply, NDAs enable the parties to share information while mitigating the risk that it will be misused as a result of sharing. In the case of two parties each sharing confidential information with the other, the NDA is mutual (or “two-way”).
Employees are often asked to sign NDAs to protect employers’ confidential information. It is important to keep in mind that an NDA cannot replace a non-compete agreement.
NDAs serve a variety of purposes, and it is, therefore, important to determine whether a mutual or unilateral (one-way) NDA is appropriate in the specific situation. The use of the confidential information shared with the receiving party will normally be restricted to a specific defined purpose. As such, the purpose of the NDA and the definition of what is considered confidential information should both be accurately described in the NDA, thus giving the parties a clear understanding of how the confidential information can be used, what can be shared, and what must be kept confidential.
It is crucial to emphasize that neither party of the NDA is obligated to enter any kind of business relationship by virtue of solely exchanging their information.
The duration of the NDA is another important component. A very long-term agreement could risk limiting the parties in pursuing other ventures, and therefore making the NDA not enforceable in a court of law. A reasonable duration with respect to the recipient’s obligation to protect any of the discloser’s confidential information is usually between one to five years.
During due-diligence activities before closing a deal, it is fundamental to determine whether any third-party representatives of the parties, such as attorneys, consultants, investors, etc. will need access to the confidential information and, if so, to ensure that they are adequately bound by the obligations of the agreement.
A well-detailed mechanism of relief should be defined in an NDA to help enforce remedies against violations. For example, the disclosing party may require that the recipient return or destroy any confidential information, and afterwards confirm in writing that the confidential information in possession has been destroyed or returned. A common mechanism is the right to obtain formal injunctive relief in the event of a breach of the NDA.
In summary, having your business attorney prepare a well drafted NDA provides for the conditions and confidence to share sensitive information with other strategic business partners, contractors, and/or vendors. As a result, the possible benefits and risks of a potential collaboration or business transaction can thereby be satisfactorily assessed by the parties.
- Michele Cea, Esq., Founding Member & Managing Attorney, CEA LEGAL P.C.
- Email: firstname.lastname@example.org, Phone: (212) 618 1644
Compliments of CEA Legal P.C. – a member of the EACCNY.