Satya Narayan, a leader in the field of intellectual property and commercial transactions at the Royse Law Firm, will share her wealth of knowledge on the subject, particularly:
-A brief introduction to nondisclosure agreements or "NDAs 101"
-NDA missteps and surprises
-Real life examples of the not so "boilerplate" NDAs
5. Definition of “Confidential Information”
Broad vs narrow definition
• Broad: Covers all information provided and lists protected categories
⁻ “any and all nonpublic information disclosed, including, without limitation, …”
⁻ Includes oral and visual disclosures
• Narrow:
⁻ Covers only listed information
⁻ Marking/ designation obligation (“marking”)
• “If the Confidential Information is embodied in tangible material, it will be
labeled as ‘confidential,’ and if disclosed orally or visually, it will be identified
as such at the time of disclosure and be confirmed in a writing to the
Recipient within 30 days of such disclosure”
• DISCLOSERS BEWARE: Failure to abide by NDA designation provisions may
preclude subsequent trade secret misappropriation claim (Convolve, Inc. v.
Compaq Computer Corp., 2013 WL 3285331 (Fed. Cir. July 1, 2013) (applying
California law to the trade secret misappropriation claim)
7. Permitted Use
Permitted Use
Limit Recipient’s scope of use of Confidential Information to a specific purpose
Limit Recipient's scope of use of Confidential Information to a specific purpose
• “Recipient may use the Discloser’s Confidential Information solely for
• "Recipient may use the Discloser's Confidential Information solely for
evaluating a possible business relationship between the parties (the
evaluating a possible business relationship between the parties (the
“Permitted Use”).”
"Permitted Use")."
• “Recipient agrees that it will hold the Discloser’s Confidential
• "Recipient agrees that it will hold the Discloser's Confidential
Information in strict confidence and will use the Discloser’s
Information in strict confidence and will use the Discloser's
Confidential Information for no purpose other than the Permitted
Confidential Information for no purpose other than the Permitted
Use.”
Use."
ROYSE
9. Permitted Disclosure
Limit Recipient’s right to disclose Confidential Information:
• To employees and representatives; contractors (?); affiliates (?)
⁻ must have a “need to know” and be subject to binding
confidentiality obligations that are at least as restrictive as the
terms of the NDA
⁻ “Recipient will limit access to the Discloser’s Confidential
Information to only those of Recipient’s employees or authorized
representatives having a need to know and who have signed
confidentiality agreements containing, or are otherwise bound by,
confidentiality obligations at least as restrictive as those
contained herein.”
• Court order or legal requirement to disclose
⁻ NOT AN EXCEPTION to the definition of Confidential Information
⁻ Written notice and assistance clause to permit the Discloser to
obtain a protective order
10. Term
DIFFERENTIATE between the term of the NDA and the duration of the confidentiality
obligation
• NDA usually has a fixed term of 1 to 2 years; BUT, generally want confidentiality
obligation to be indefinite
‐ Limited confidentiality term may result in loss of trade secret protection
(see Silicon Image, Inc. v. Analogk, Semiconductor, Inc., 2008 WL 166950
(N.D. Cal. Jan. 17, 2008)(ultimately settled))
‐ Even upon termination, Confidential Information may reside on Recipient’s
archives or back‐up tapes
• Confidentiality term for non‐technical information not protected as trade
secrets can be limited; protect technical information and trade secrets
indefinitely
• Sometimes confidentiality obligation is stated to continue until such time that
one of the standard exceptions becomes applicable
₋ Limit expiration of obligation to particular information affected by standard
exception
11. Other Key Terms
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No License Grant
– “Nothing in this NDA is intended to grant or imply any rights, by license or
otherwise, to Recipient, including, without limitation, under any patent, copyright,
trade secret, or other intellectual property right[, except the limited right to review
Discloser’s Confidential Information solely for the purposes of consideration of a
possible transaction between the parties.]”
Limit Recipient’s Reproduction Right
– No reproduction except as required to accomplish the intent of the NDA
– All reproductions must include confidentiality/ proprietary notices
No Reverse Engineering
– “Recipient agrees not to modify, reverse engineer, decompile, create other works
from, or disassemble any software programs furnished by Discloser without the
Discloser’s prior written consent.”
DISCLOSERS BEWARE of granting warranties. Include a warranty disclaimer.
DISCLOSERS BEWARE of liability caps and disclaimer of consequential damages.
12. Other Key Terms
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Injunctive Relief
– “Recipient acknowledges that money damages [would]/[may] not be a sufficient
remedy for any breach of this NDA and that the Discloser [would]/[may] suffer
irreparable harm as a result of such breach. Accordingly, without limiting any
other remedies available to Discloser, Recipient agrees that Discloser will be
entitled to seek injunctive relief under this NDA, as well as such further relief as
may be granted by a court of competent jurisdiction.”
Enforcement
– Specify governing law
– Prevailing party in litigation will be entitled to its costs and reasonable attorneys’
fees
14. Using the Wrong Type of NDA
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Mutual NDA v. One‐Way NDA
– Do you really need a Mutual NDA?
– Do you need the Discloser’s Confidential Information? What Confidential Information
will be received? Will it taint Recipient’s Confidential Information?
NDAs for M&A transactions
– Different from NDAs for commercial transactions
– Strategic objectives in an M&A deal are different
– Additional provisions: fact of transaction is confidential, non‐solicitation obligation,
standstill provisions (if target is, or about to become, public co.), etc.
– Sometimes separate NDAs with purchaser’s diligence advisors are executed where
access to the target’s sensitive Confidential Information is limited to such advisors.
Form of such NDAs different.
Using the NDA beyond its intended purpose
– Using the NDA for purposes other preliminary discussions
– If actual use (including testing) of a product is contemplated or services will be
provided, an NDA may be inadequate
15. Misleading NDA Title
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•
Recipient favorable NDAs masquerading as “mutual” NDAs
₋ Limited confidentiality term
₋ Light obligations on the Recipient
₋ Broader use and disclosure rights (e.g. disclosure to Recipient’s
affiliates; residuals clause; etc.)
₋ Liability capped or consequential damages disclaimed
Can also have Discloser favorable NDAs masquerading as “mutual” NDAs
16. Warranties in NDA
Warranties
– E.g., warranties of accuracy, non‐infringement, compliance with laws, etc.
– Recipient’s Perspective:
• Accuracy Warranty: Recipient must be able to trust information that is shared to
commit to a business relationship.
• Non‐infringement Warranty: Exposure to third party infringement claims based on
Discloser’s Confidential Information
– Discloser’s Perspective: All warranties disclaimed.
• No value promised or exchanged at NDA stage
• NDA’s limited scope of use of Confidential Information may not justify granting
warranties
• Unlimited liability nature of the NDA
• Warranty exclusions and exclusive remedies are not negotiated at NDA stage
• Definitive agreement will contain warranties
• Accuracy warranty is a potential backdoor to claim reliance damages and diligence
costs
17. Indemnities in NDA
Recipient Indemnification: To protect against third party infringement claims based on
Discloser’s Confidential Information
– Same concerns from Discloser’s perspective as giving a non‐infringement
warranty
– Alternative: Discloser will not knowingly communicate any information to
Recipient in violation of the proprietary rights of any third party.
• Discloser Indemnification: Indemnity to cover losses and damages arising from
disclosure or misuse by Recipient’s third party personnel (e.g., Recipient’s contractors)
who are permitted access to Discloser’s Confidential Information
– Alternative: Any disclosure or use of any Confidential Information of Discloser by
any Recipient Representative other than as authorized in this NDA, shall be
deemed a breach of this NDA by Recipient.
• BEWARE of indemnification that does not involve third party claims
– Action for breach of contract should be sufficient
•
19. Refrigeration & Anti-Refrigeration
•
•
RECIPIENTS BEWARE of the “refrigeration” clause
– Prevents employees of Recipient who have had access to Discloser’s
Confidential Information from working on similar projects, products
or services.
DISCLOSERS BEWARE of the “anti‐refrigeration” clause
– “Access to the Confidential Information of Discloser shall not
preclude any employee of Recipient who has seen such Confidential
Information from working on projects, products, or services for
Recipient or its customers that are the same as or similar to
Discloser’s projects, products, or services”
– Sample Protective Proviso: […; provided that such employee does
not use or make reference to the Confidential Information of
Discloser or refer to notes made as a result of access to such
Confidential Information]
20. III. EXAMPLE OF THE NOT SO
“BOILERPLATE” NDA
The contents of the next slide are for educational purposes only and should not be construed to constitute legal advice
(which is dependent in every case on its own unique facts and circumstances). Clauses have been drafted by the
presenter to reflect some issues encountered in NDAs; no plagiarism or copyright infringement is intended. The next
slide is intentionally omitted from the take-home materials.
22. IV. PRACTITIONER TIPS
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Ask the client questions to inform your review of the NDA
– What is the nature of the contemplated transaction? What Confidential
Information will be disclosed and received? How will each party use the other
party’s Confidential Information? Where is the Recipient located? Etc.
Assess what form of NDA should be used based on the contemplated transaction
If the client will be the primary discloser or will disclose sensitive Confidential
Information, advise the client to propose its form of NDA
Allow time for negotiating the NDA
Advise the client regarding the risk of making certain types of concessions
Educate clients regarding NDA best practices
– Mark tangible materials as “Confidential Information.” Comply with marking
and notice requirements for oral and visual disclosures. Keep notes of
information disclosed and received. Keep other party’s information
confidential and treat it as you would your own. Etc.