How to Negotiate the Terms of a Non Disclosure Agreement

A non-disclosure agreement (NDA), also known as a confidentiality agreement, is a contract protecting against the disclosure of confidential information. Often, NDAs are written too broadly, so that one party signing the agreement may not be sure what he or she is legally allowed to say. In addition, NDAs are often part of settlement agreements requiring one party to remain silent in return for a larger settlement. Both parties to a potential NDA have an opportunity to negotiate the amount of non-disclosable information to be included and the compensation the non-disclosing party will receive. In addition, negotiations may touch on boilerplate provisions including how disputes will be settled and what laws will apply.

Part 1

Part 1 of 3:

Determining the Need for a Non-Disclosure Agreement

1
Establish the purpose of the agreement. There are different kinds of NDAs, which are used under different circumstances. Your first task is to think about and decide why you need an NDA.^{[1]XResearch source}
- "Mutual” NDAs are the kind that are drafted and signed between two generally equal parties who are sharing information for a specific, and usually temporary, purpose. Two autonomous companies entering into a joint venture, for example, will often sign mutual NDAs. When the joint venture ends, they each promise not to disclose or use what they have learned about the other.
- Unilateral or ”one-way” NDAs are signed when one party has certain confidential information to protect, and another party agrees to keep the information secret. This is the type of agreement that will often be signed between an employer and an employee.
2
Itemize the information that is to be protected. For a mutual NDA, each side will have information that it wants to protect. Before entering into discussions for an NDA, it will help if each party takes time to note the important information that needs to be kept confidential.^{[2]XResearch source}
- When preparing for negotiations, it is useful to make two or even three lists. The first list should contain information that must be included in the contract. The second list will have the points that would be good in the contract but could be omitted. The third list could include items that may be discussed but that you will quickly be willing to give up during negotiations.
- Preparation ahead of time is always important for useful and efficient negotiations.
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3
Prepare the format of the NDA. You can search online for templates of NDAs that you might use. You could copy one of these almost verbatim, or use a template to get ideas for your own agreement.^{[3]XResearch source}
- Some templates are designed to conform to the laws of each particular state. This can be helpful, particularly if you are trying to create an agreement on your own without involving an attorney.
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Part 2

Part 2 of 3:

Negotiating the Terms of the Non-Disclosure Agreement

1
Plan a meeting to discuss a mutual NDA. If you are going to be entering into a mutual NDA, you will need to plan a meeting with all interested parties. This will be your opportunity to address the terms of the agreement.^{[4]XResearch source}^{[5]XResearch source}
- This “meeting” is going to take on a different appearance depending on the type of agreement. If the NDA is being designed as a mutual agreement between two companies that are sharing information for a joint venture, then you will be planning a formal meeting, with officers of the two companies and probably their lawyers. At the other end of the spectrum, if you are a new employee to a company where you will be working with trade secrets, there may not even be a real meeting. The human resources director, as part of your employment, will hand you the company’s form and tell you to sign it.
- Even if you are handed a unilateral NDA as part of your employment, you should still read it carefully and review the terms. There may still be an opportunity to limit certain definitions.
2
Define the parties to the agreement. The NDA must name the people or entities that are covered by its terms. You need to be clear in discussing this, and make sure that the written agreement covers everyone you intent.^{[6]XResearch source}
- If you are the party with the information to protect, you will want the agreement to be as inclusive as possible. You should try to get it to include everyone involved in the project, or everyone who will have contact with or knowledge of your information.
- If you are the party receiving the information or being bound by the agreement, you should try to negotiate as minimal a description as possible. You will want the agreement to name individual people specifically. This is not to suggest that you intend to steal company secrets. It is just a good idea to limit the terms of the agreement so it is not overly inclusive.
- If you are an employee, the company you work for may have you sign a unilateral NDA when you begin working. In this case, the identification of the parties is not something to negotiate. One party is the company, and the second party will be you.
3
Specify the confidential information. Your agreement must identify the information that is to be protected, and it must be written clearly enough so that some uninvolved third party can interpret what you mean. As with naming the parties to the agreement, the two sides of the negotiation will have two different motives in defining what information is to be covered:^{[7]XResearch source}^{[8]XResearch source}
- The party with the information to protect will want the language as broadly written as possible. You will want to use general descriptive terms like “all financial information,” “all information related to computer software and computer products,” and so on.
- The party receiving the information will want to draft an agreement that is more specific. You will want the company to identify as many specific terms as possible. If there are financial records, try to identify them by time periods or by specific purposes. Instead of a phrase like “all financial information,” you would prefer to have the contract read, “Financial information related to the development of the Alpha Project” (or whatever project you’re working on).
4
Identify the term or time period of the NDA. NDAs are not usually intended to last perpetually. In the United States, the common term for most NDAs is five years, while in Europe they may tend to last longer.^{[9]XResearch source}
- The language to identify the term of the agreement will read, “The receiving party (or provide the name) shall not use or disclose the confidential information covered by this agreement for a term of five years from the date of this agreement.”
- If you are the receiving party, or an employee signing a unilateral NDA, you should try to limit the length of the term. However, you do not want to object strenuously or you may create warning signs and make your new employer wonder about your loyalty to the company.
5
Include the “standard exceptions” in your NDA. By practice, certain items or categories of information are generally excluded from the non-disclosure requirements. Even though it is common practice, you should check to make sure that the agreement includes them. If the exceptions are not stated, you could be limited in your future independent work, even though you otherwise should not be. These exceptions include the following descriptions:^{[10]XResearch source}
- Information that is now or subsequently becomes generally available to the public other than as a result of your wrongful disclosure.
- Information already known by you.
- Information made available to you by a third party who was under no legal duty not to disclose it.
- Developments that you make independent of the disclosed information.
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Part 3

Part 3 of 3:

Finalizing the Agreement

1
Specify the remedy for any breaches of the agreement. The purpose of an NDA is to create a cause of action in case one side or the other wrongfully discloses or uses any confidential information. For this to apply, the contract should define the remedy. In contract law, there are two types of remedies: money, or injunctive relief. For an NDA, both may apply and should be identified in the contract.^{[11]XResearch source}
- Monetary relief is typically what the court will order first, if it can. This is a simple order that says one side owes the other a sum of money to pay for the damage that it caused. If you want to be able to collect money damages for a breach of an NDA, you need to think about how you will prove the value of your financial damages.
- An injunction is an order from the court that says the offending party must stop doing something -- using the information, selling a new product, or whatever else it is doing with the confidential information. Your NDA should explicitly say that injunctive relief is appropriate and should be awarded in the event of a breach.
2
Include the “usual boilerplate” terms. “Boilerplate” is a term used in the legal profession to refer to certain terms that are somewhat generic but need to be included in the contract. Some boilerplate terms for an NDA will include:^{[12]XResearch source}
- a definition of which state’s law will apply to resolve any disagreements. If both parties are in the same state or country, then this is obvious. If the two parties cross state lines or do business in multiple states or countries, then the contract should specify, for example, “Any disagreements related to interpretation of this NDA or violations thereof will apply the laws of the State of ________.”
- whether you wish to require arbitration as an initial step in resolving any disputes. This is a common term for contracts of all types. Arbitration can be a quicker and less expensive process than proceeding to trial.
- whether or not attorneys’ fees will be awarded to the prevailing party in the event of a dispute. If you choose to include this term, you may wish to include a limit, either as a fixed amount or a percentage of the damages.
It is important to have the signatures of the parties to the agreement. If either one or both parties are companies, then you need to make sure that the person signing the agreement has authority to act on behalf of the company.
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Warnings

While there are non-disclosure agreement templates available on the Internet, it is important to consult with an attorney when drafting and using a non-disclosure agreement. If the agreement is not valid, by the time you know about it, it will likely be too late to contain the information.
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