What General Counsel Need to Know Before Drafting and Updating Non-Disclosure Agreements (Free Preview)

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Free Preview: Drafting and Updating Non-Disclosure Agreements (NDA) [Transcription]

Hi. I’m Rob Turner. I’m the managing partner with InTown Law, based in Atlanta, Georgia. Today’s presentation is going to speak with you about non-disclosure agreements. I want to share my experiences with you in negotiating non-disclosure agreements and hope that you come away with some practical advice that you can use to make your next review or drafting of an NDA as efficient as possible for your business.

Let’s start with some basics. What is a non-disclosure agreement? A non-disclosure agreement, at its basic level, is a contract between two parties to protect certain confidential information that will be exchanged between those parties. When should you use a non-disclosure agreement? This question comes up a lot with my clients. Confidential information can be exchanged as part of strategic discussions. This can also include M&A transactions, or it may be part of your best practices with prospective customers, or vendors.

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All of these are scenarios under which your business should think about having a non-disclosure agreement in place. My recommendation is to always have a non-disclosure agreement in place whenever there is any confidential information being shared about your company. Who is disclosing the information under the NDA? I want you, and your business to think about this point. Because it’s a very important question to ask, why is this important? It’s important because the information exchanged can be either one-way or mutual. By this, I mean your company could be on the receiving end of information from another company, or it may be the case that not only is your business receiving information from the other company, but you are sharing your own businesses confidential information with them.

Why does the information exchange matter when you’re looking at one-way, or mutual? This is an important question to ask because you need to determine whether to protect your companies confidential information or determine whether any information that is received, any confidential information that is received will be given appropriate levels of protection. Appropriate levels of protection will include who are the person, or persons entitled to access this information? In every non-disclosure agreement, the agreement will have a definition for what is included as confidential information.

This is important to pay particular attention to. Why is this important? Because the particular non-disclosure agreement may limit the information only to physical or electronic items that are expressly labeled as confidential, or the NDA, may be broader, and it may include information that is exchanged verbally. My recommendation, whenever you are drafting an NDA, is to have a very broad and expansive definition. This would be something that would include all verbal discussions and any information that is exchanged between the parties that could be reasonably construed as confidential.

My practice tip is that a broadly defined term of quote confidential information will help ensure that nothing falls through the cracks, and may not be protected. What is the term of your non-disclosure agreement, this is important to note because your business needs to understand how long it will be contractually obligated to maintain the confidences of the information that was exchanged. Many non-disclosure agreements will have a term that ranges between two, and three years.

From my experience, that is commercially reasonable. Where I personally have an issue and advise clients to focus on are those agreements that have terms that are open-ended. Meaning there is no expiration, it is intended that the information that was exchanged to be kept confidential in perpetuity. This can also present a problem, particularly when you are dealing with technology-oriented clients because the technology changes so rapidly. What may be confidential today may be common knowledge eighteen months from now.

This is why it’s important to pay attention to the term of the non-disclosure agreement because depending on what your business interests are, and the sensitive nature of the information being exchanged, a short survival may make perfect sense, or you may need to agree on something that is much longer. If the businesses should be exchanging information that may be a trade secret, and critical to the operations of your business then it would make sense to have an open-ended term for your non-disclosure agreement.

Who has access to your confidential information? From my experience, I always advise my clients to limit access to those people who are on a need to know basis. This is typically a very small number of persons and it may be the CEO, it may be a particular vice president who is leading strategic discussions with an outside party, it may be the head of sales, it may be your companies chief legal officer, but it should be a very tight group of individuals within your company. Because this is how your business helps ensure and protect its own contractual obligations by not letting the disclosing parties’ confidential information get out.

One tip that I always make to my clients is that when you are drafting the NDA, or if you are reviewing someone else’s that you make sure that the confidential information can be shared with your outside professional advisors. Such as your outside attorney’s or your accountants. This is especially important in an M&A type scenario if the outside counsel is helping your in-house legal team prepare the acquisition documents or sale documents. They need to know precisely what information is being exchanged as part of any business deal. Your business needs to ensure that you have the legal right to share that information with them.

Now, as a practical point, what you may find is that the other side of your non-disclosure agreement, the company on the other side of the table, the will agree to that, but they will want to make sure that if you are sharing their confidential information with your professional advisors, that those advisors have agreed to maintain the confidences of their non-disclosure agreement.

Compelled disclosure of confidential information. What does this mean? Sometimes the companies exchanging confidential information can be sued, and the plaintiff in the litigation may seek to have the confidential information that was exchanged shared with them as part of their discovery process. What happens if the parties are subpoenaed and they’re required to disclose the confidential information?

Practically speaking, you’re the general counsel and your company has just signed a non-disclosure with company ABC, yet, you just received a subpoena from company XYZ requiring you to turn over copies of ABC company’s confidential information. This is a point that I strongly recommend that you address in your non-disclosure agreement.

The way that it is typically done is that before you can share ABC company’s confidential information with company XYZ you have to first give ABC company notice and an opportunity for them to interview and attempt to stop the disclosure. However, if they are unsuccessful then you have already contemplated this carve-out scenario, where you can share the confidential information without being deemed in breach of the non-disclosure agreement. So, that’s why our last comment on this slide ten is that only under a legally held disclosure, and after you’ve had the opportunity to respond should your company be obligated to turn over anyone’s confidential information.

This is one that I’ve seen come up a few times, and it’s a provision that you are going to really wish you had in your non-disclosure agreement if it’s silent on this point, so I strongly encourage you to consider this as a drafting point.

ExecSense Speaker

Rob Turner
Founding Member & Managing Partner, InTown Legal
Corporate & Commercial Law

ExecSense_Rob Turner

Rob Turner is the Founding Member of InTown Legal, a full-service commercial attorney and business adviser who thrives in helping his clients solve their business and legal challenges.

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His practice focuses on corporate and commercial law, commercial real estate (including communications infrastructure: cell towers, rooftop antenna, DAS, data center and related matters), mergers and acquisitions, and technology licensing and contracts. Rob’s legal skills were honed through a unique blend of prior work in larger regional firms, serving as in-house counsel and, most recently, working with a well-respected Atlanta technology and venture capital law boutique.

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