It’s Confidential! How To Keep It That Way!

Many transactions begin with an exchange of confidential information. Examples include environmental reports for a commercial property, financial information for the sale of a business, or product details for a manufacturer. In all these cases, the disclosing party wants to be confident that the recipient will use the confidential information only for proper purposes and won’t disclose it to others. For these reasons, clients often consider Non-Disclosure Agreements (NDA).

Though every NDA calls for some level of confidentiality, the similarities end there. There is no such thing as a “standard” NDA. Instead, they often have many subtle differences. And, in most transactions, one party would suffer far more than the other from a disclosure of confidential information, so the fact that an NDA happens to be reciprocal affords no real assurance.

So, what are the key provisions to consider?

• What is confidential? Defining the items to remain private can be a challenge. Some NDAs might provide that only an item stamped “Confidential” is entitled to protection. Obviously, that would be too limiting.
• Who can see it? Recipients often engage consultants to review disclosed information. Be sure they are bound by confidentiality, as well.
• What can a recipient do with it? Some NDAs prohibit disclosure but are otherwise silent about the intended use. In that case, a recipient company might use the confidential information for its own purposes, without violating the NDA. Clearly, that is not a good result.
• What if the disclosed information turns out to be inaccurate? A disclosing party is best protected when the NDA disclaims the accuracy and completeness of disclosed information. Those issues should be deferred to any transaction documents which may follow.
• How long must the recipient maintain confidentiality? Some NDAs require confidentiality for as little as a year or two. A disclosing party would usually prefer a much longer period.
• What happens when the NDA ends? The disclosing party would typically want the recipient to return or destroy every confidential item. The recipient, however, may need to retain some copies for compliance and liability purposes.
• What is the remedy for a violation? Unauthorized disclosures can be devastating. Thus, the NDA would typically allow for damages and a court injunction against further disclosures, plus the reimbursement of legal fees for the successful party.
• Where must any court case take place? Some NDAs require all litigation to occur in a certain location, regardless of the location of the parties. This can be highly inconvenient for a discloser who needs to enforce the document.

This list summarizes some of the more important provisions, but it also illustrates how complex these seemingly simple documents can become. For assistance, please call a member of our Transactions team at 203-744-1929.