Whether you are talking to a potential buyer of your company, an interested investor, or a joint venture partner, before any confidential information is shared with that person, they should execute a Non Disclosure Agreement, often referred to as “NDA.” The NDAs are very popular and come in a variety of shapes and length. Their main purpose is to protect the confidentiality of information shared with a company outsider. Not having a signed enforceable NDA may result in a major headache down the road when the information that was meant to be confidential falls into the wrong hands. In my experience, here are the most common mistakes that companies make when it comes to non disclosure agreements:
Mistake No. 1: Not specifying what information will be covered and for how long.
A non disclosure agreement should describe: (1) what type of information is being disclosed; (2) whether the NDA covers only written disclosures or also oral disclosures; (3) how will this information be disclosed; (4) how may this disclosed information be used by the recipient; and (5) how long will the recipient have to maintain the confidentiality of the information. A NDA missing one or more of these terms may cause problems between the parties when they actually begin to disclose confidential information to each other.
Mistake No. 2: Not specifying when or how disputes related to the NDA will be determined.
A good NDA will have a clause that will specify where and how any disputes related to the NDA will be resolved – whether it’s through mediation, arbitration or litigation. It should also specify what law will govern the agreement.
Mistake No. 3: Not keeping an electronic copy of a signed NDA.
It’s 2016 so this advice might seem painfully obvious. However, it happens more often than you would think – a hard copy of a signed NDA somehow disappears or “walks away” and nobody can find an electronic copy with all the signatures. To prevent this from happening, a company should always designate one person to be in charge of collecting all the necessary signatures and saving the NDA somewhere where it can be easily found should a problem arise.
Mistake No. 4: Not designating the disclosed information as “Confidential.”
Any information shared under the NDA should be marked as “Confidential” or “Highly Confidential.” Many companies mistakenly believe that once a party signed a non disclosure agreement, they are automatically protected. That is not the case. Failing to designate all shared information as confidential may lead to future disputes as to whether certain data or information was meant to be confidential. Moreover, should a problem arise with the NDA agreement, such as a missing signature, the confidentiality stamp will provide a back-up protection.
Mistake No. 5: Not limiting the scope of what you are disclosing to the party who signed the NDA.
A party should always limit the scope of what it is disclosing to only that which is absolutely necessary for the other party to know related to the purpose of the NDA. The costs of enforcing or attempting to enforce an NDA may be significant, so limiting the disclosure of information may help a party avoid the risk and expense of litigation.
Leiza litigates non-compete and trade secrets lawsuits on behalf of COMPANIES and EMPLOYEES in a variety of industries, and knows how such disputes typically play out for both parties. If you need assistance with a non-compete or a trade secret misappropriation situation, contact Leiza for a confidential consultation at LDolghih@GodwinLaw.com or (214) 939-4458.