The Licensing Corner

• Citation: Vol. 45 No. 3
• Publication year: 2020
• Author: Sean Hogle
• topic: Business of Law,Contracts,Intellectual Property

The Licensing Corner

Sean Hogle

Rooney Nimmo PC

THE PERFECT NON-DISCLOSURE AGREEMENT (AND TOP 5 NDA PET PEEVES)

Among the nearly infinite variety of legal agreements in use today, the non-disclosure agreement for general bilateral business discussions is by far the most ubiquitous. If measured only by the frequency of its use and the significance of its impact, a company's NDA template is arguably its most important. The $200 million verdict against Oculus for breach of a rather simple NDA¹ speaks volumes as to how critical such an agreement can be.

Every company has its own unique general use NDA template; paradoxically, many companies sign the opposite party's template more often than not. The party larger in size, reputation, market cap, or perceived importance usually wins the battle of the NDA form. This NDA ritual takes place hundreds of times a day all over the world.

Fundamentally the purpose of the NDA is straightforward: protect confidential information from unauthorized use and disclosure. Both parties have an equal and legitimate interest in protecting their own information, and each party usually recognizes the other sides interest as well. The best general purpose NDAs are those that are short, simple, clear, and mutual. The worst are those that are complex, lengthy, and lack basic mutuality.

In this edition of the Licensing Corner, some of the attributes of a "perfect" NDA (to the extent such a thing is possible) and related issues will be explored, as well as certain "pet peeves" that can be problematic in the NDA context.

The model NDA template accomplishes what should be the primary objective of any NDA: establish a balanced legal framework for the protection of each party's confidential information in a simple, clear and direct manner. All of the terms and obligations should be reciprocal. Neither side should be advantaged. There should be no unexpected provisions. And ideally the NDA should be a modest one or two pages in length.

Effective Date

The "Effective Date" can be a date that's inserted on the date of signature, or it can be expressed as the date of the last signature. The problem with leaving the date blank is that it often remains blank after both parties have signed. That said, if the NDA protects information whether disclosed before or after the effective date, then there's little significance to the effective date, other than clarifying when the agreement came into being and, thus, the term of the agreement.

Definition of Confidential Information

Typically, NDAs define "Confidential Information" to include written as well as orally disclosed information, so long as marked or designated as confidential. Oral information is often protected only if it is summarized in writing within a certain period of time after disclosure. The issue of orally disclosed information is a challenging one. Many companies, especially larger ones with active and sizable legal departments, are reluctant to tie themselves to confidentiality obligations with respect to any orally disclosed information that is not summarized in writing later. The problem of course is that such summaries are rarely completed. Without the summary, no protection applies.

The ideal template attempts to strike a balance between the two extremes, by extending protection not only if it's summarized in writing, but by extending protection to certain specifically enumerated categories of information (for example, "contemplated product or service plans, marketing or business strategies, vulnerabilities, third party relationships, or pricing or financial information"). Few would argue that oral information...