Mark Pestronk
Q: From time to time, prospective vendors and other companies send us a nondisclosure agreement (NDA). These appear to be standard agreements under which both sides promise not to reveal to third parties confidential information that they learn about the other party's business. The NDA is usually entered into before the main vendor agreement, technology agreement, acquisition agreement, etc. Can you give us a short checklist of provisions that an attorney would look for in a draft NDA? What's the difference between an NDA and a confidentiality agreement?
A: Here are 10 provisions to look for in an NDA that will protect your business:
1) Correct identification of the parties. Use full legal names, being sure to mention subsidiaries if the other party has any.
2) A clear and comprehensive definition of "confidential information." For travel agencies, this should include client names, transaction fees and volumes; employee and names, titles and compensation of independent contractors; agreements with clients, suppliers, employees and ICs; and all agency financial data.
3) Deletion of any clause requiring marking information as confidential. Sometimes an NDA will provide that you have to stamp information as "confidential" for it to be protected. You should delete such provisions because you may well inadvertently forget to mark a document.
4) A statement of the purpose of receiving information about the other party and a commitment to use the confidential information only for that purpose. For example, for a possible acquisition, state that confidential information should be used only in connection with an acquisition.
5) A nondisclosure commitment. State that a party shall not disclose any of the confidential information provided by the other party, except as required in a court proceeding.
6) Exceptions to the nondisclosure commitment. Sometimes, NDAs also provide that the other party may disclose otherwise confidential information that it knew before you disclosed it, or that is a matter of public record, but these exceptions should be carefully limited.
7) Length of the nondisclosure and nonuse commitments. The term of the agreement should be several years after the last disclosure of confidential information.
8) Consent to an injunction. Each party agrees that, if it violates the NDA, the other party is entitled to a court injunction filed in its home county or state. Such a clause expedites court proceedings, as you would otherwise have to prove that money damages would be inadequate and that the harm to you would be irreparable.
9) Loser pays attorneys' fees. Provide that the prevailing party in any litigation will be awarded reasonable attorneys' fees.
10) No noncompete clause. Sometimes, a party will try to sneak in a clause stating that you will not compete with it. Be sure to delete any such clause.
The terms "NDA" and "confidentiality agreement" are synonymous. The former term is usually used in connection with a prospective transaction, while the latter is used with employee terminations and lawsuit settlements.