NDAs: What to Consider Before Signing on the Dotted Line

Non-disclosure agreements (NDAs) are often part of the discussions my clients have surrounding a potential construction or real estate project to protect the confidential information regarding the project and proprietary information of the parties. A good NDA, among other things, clearly defines the scope of the NDA and obligations of the parties. Best practices dictate that one always has his or her attorney review a proposed NDA, and I have personally seen several clients sign unreasonable NDAs. There are numerous provisions to watch for when reviewing NDAs, including the ones noted below.

Definition/Exclusions: Parties should pay close attention to the definition of confidential/protected information, including what the definition includes and perhaps more importantly, what the definition excludes. Among other things, the exclusions should include publicly known information and information already known by the receiving party.

Use of the Information: Parties should ensure that they understand how the confidential information can be used, including if and how the information can be shared.

People With Whom Information Can be Shared: Parties should understand the people with whom the receiving party can share the protected information. For example, can the protected information be shared with all employees, or some? Can the protected information be shared with your attorney or accountant?

Also, some NDAs provide that the people with whom the information is shared must sign a separate NDA or other written acknowledgment of the NDA. Other NDAs do not have any such provision but instead provide that the people with whom the information is shared need to be told the NDA is in place and the information is protected by the NDA.

Term: Parties should ensure they understand the agreement term, which may be from a year to in perpetuity and consider whether the term is reasonable.

Remedies: Some NDAs contain a liquidated damages provision for breach of the NDA (e.g., if a party breaches the NDA, it is liable to the other party in the amount of $100K), while others do not. If the NDA includes a liquidated damages provision, the parties should consider whether such provision is truly necessary and reasonable in the situation.

Return/Destruction of Information: Parties should understand their obligations at the end of the transaction relating to the return or destruction of the information.

Mutual NDA: A party who receives a proposed NDA from another party should consider whether a mutual NDA would make sense. That is, is the receiving party also sharing any information that would be considered confidential information? If so, the NDA should be revised to be a mutually applicable NDA.

Employee Non-Solicitation: Parties should watch out for any employee non-solicitation provision, as some NDAs have employee non-solicitation provisions, and consider the reasonableness of such provisions.

Intellectual Property Ownership: Generally, NDAs should not transfer or change intellectual property ownership but should merely confirm it. For example, generally an NDA should not state that any jointly discussed confidential information becomes jointly owned by both parties.

If you have questions regarding non-disclosure agreements and obligations in your construction or real estate matters, please contact Jodie McDougal at jmcdougal@fredlaw.com or 515.242.8971.