A non-disclosure agreement, colloquially known as the NDA, is typically used in a commercial context to protect any confidential information that has value for the disclosing party. In other words, whether you are planning to start a new co-operation, to kick-off an M&A deal, to raise funds from the investors, or you simply have a business-related reason to disclose your information to another party, NDA is your weapon of choice. Having said that, what should the NDA contain and what are the key terms that you should take into consideration?
Are you only disclosing information? Or are you, perhaps, both disclosing and receiving information?
This very much affects the negotiation position of the parties and the actual NDA. Most likely you would need to use a unilateral NDA in situations where your company is about to raise funds from investors and the investors need to conduct a due diligence review on your company. This is fair and square… they need to know what they are investing in. On the other hand, a mutual NDA should be used when both parties disclose and receive information reciprocally, e.g. before the commencement of co-operation/JV negotiations.
Moving forward, you should always pay attention to the following aspects in the NDA:
Definition of Confidential Information.You have to be very cautious, clear and comprehensive when it comes down to the definition of confidential information. Defining confidential information as ‘all information’ may fall short of what you believe is acceptable. Try to avoid broad and vague definitions in order to make sure that the NDA is more easily enforceable.
Use of Confidential Information.As the disclosing party, you want to know how your information will be used. Therefore, the following questions should be considered in the context of the NDA: How is the information used and for what purpose? How is the information kept and stored? What happen with the information after termination or expiration of the NDA?
Ownership of Confidential Information.It is important to specify the ownership of your confidential information to further protect your interests, whether in the context of an investor-investee relationship or in the context of a co-operation relationship.
Naturally, the above items do not create an exhaustive checklist for you as there are other important aspects that need to be checked before signing the NDA. In any case, you should always have a written, dated and signed NDA, the contents of which is clear, understandable and acceptable to you. NDA may seem like a simple and straight-forward thing, but at the end of the day, it is an important and surprisingly complex document that you should pay close attention to.
