Business relationships often lead to the exchange of sensitive information or access to highly confidential matter. When faced with this situation, is it enough to merely tell your business partner that something is confidential? Absolutely not.
Businesses should always protect their confidential information using a Non-Disclosure Agreement (NDA). NDAs are commonly used when businesses are contemplating or negotiating some sort of contractual relationship or deal. The NDA allows one party to share confidential and trade secret information with another and places restrictions on how the other party can use that information and obligates the other party keep such information confidential.
Under both the Federal Defend Trade Secrets Act and Florida’s Uniform Trade Secrets Act, trade secret owners must make reasonable efforts to maintain the secrecy of their confidential information. Using an NDA when disclosing confidential information demonstrates making reasonable efforts to protect that information.
However, some businesses do not have a standard form NDAs they can readily use. Also, many other businesses develop a general and broad NDA that they use over and over in all situations. Because it is good practice to have an NDA ready for situations where disclosure of confidential information is required, business should keep in mind the following issues to ensure they are adequately protected.
No Expiration Dates
So long as they are kept secret, trade secrets do not expire. Likewise, the confidentiality obligations in an NDA should have no expiration date. If an NDA provides that a party must keep information confidential only for some period of time, when that time expires, so does the secrecy of the information. Thus, businesses should avoid using NDAs that have only a finite period of confidentiality.
It is not enough that an NDA merely recite that a party may disclose confidential or trade secret information to the other. The type and nature of that information must be described in some fashion. The description does not have to be so thorough as to give away the trade secret at issue, but should at least generally describe the types of information disclosed. At the simplest this means describing at least the general categories of information that will be disclosed:
- financial information
- accounts receivables
- vendor lists
- customer lists
The more descriptive a disclosing party can be, the less likely the other party can claim that something was disclosed and they were unaware it was a trade secret subject to the NDA.
Often, the first thing a business will do after it learns someone has possession of its trade secrets and is using those trade secrets in its business is to seek injunctive relief — an order from a court mandating the other party stop use of the trade secrets. To help ensure such relief is available, when drafting or revising an NDA there should be language where the party receiving confidential information expressly acknowledges and agrees to that injunctive relief. Not only will this make things easier if a lawsuit must be filed, but it will also operate as a deterrent against use of confidential information because the other party will want to avoid being subject to injunctive relief.
Simply presenting an NDA to another part is not sufficient to protect any confidential information. The other party must acknowledge the NDA and sign it. Without signatures, if a lawsuit to enforce confidentiality obligations becomes necessary, it will be difficult to protect the trade secrets and confidential information at issue. While using an NDA in the first instance is a reasonable measure to protect secrecy of information, failing to have the other party acknowledge and sign the NDA may not be considered reasonable. Do not risk giving up confidential information because of a failure to have the NDA countersigned.
When businesses recycle old NDAs for new purposes, sometimes they fail to update all relevant terms of the NDA. Sometimes this includes provisions calling for where lawsuits regarding the NDA must be filed. When initially drafting an NDA or revising a previously used one, always look at provisions addressing where claims can be brought and make sure the place is local.
While many other terms are also relevant and the nature of any information that will be disclosed will dictate other terms, the above items are some of the more important items to keep in mind when creating or revising an NDA.
If your organization needs assistance developing an NDA, I may be reached at email@example.com or by phone at 239-344-1153.