Nondisclosure Agreements

The most common type of business-to-business contract is the Nondisclosure Agreement (NDA).

Why are NDAs important?

NDAs permit a company to disclose valuable information to another company, while protecting the confidentiality of that information. Typically, the purpose of the disclosure is to evaluate a potential business opportunity and, if all the pieces fall in place, to implement and perform the business transaction.

When should NDAs be signed?

NDAs are usually signed at the beginning of a potential business relationship – before any valuable confidential information is disclosed by either party.

What is Confidential Information?

Confidential Information should be custom defined in each NDA to fit the pending transaction. The definition should not be too broad. Information should be included as “CONFIDENTIAL” only if it would cause a problem if it was received by a competitor. Confidential Information should also include personal information and other sensitive data that is protected under federal or state privacy and data security laws. Conversely, Confidential Information should exclude information that has become publicly known or made available through no wrongful act of the party receiving the information.

Who may receive Confidential Information?

In addition to the parties, their employees, directors, officers, agents, affiliates, successors and contractors are often permitted to receive Confidential Information, but only if they (a) need to know the Confidential Information in order to facilitate the authorized purpose, and (b) are bound by a legal duty of confidentiality.

Where are NDAs used?

Worldwide. However, enforcement of NDAs vary greatly. For example, U.S. style NDAs generally do not work in China.

How do NDAs restrict the use of information?

NDAs usually require the receiving party to protect and secure the Confidential Information with the same degree of care it uses to protect its own Confidential Information (but not less than reasonable care).

Categories: Business Contracts

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