Nondisclosure Agreements - It's a Matter of Timing
If you have a business, then there is certain information about your business that you want to keep secret because of its economic and competitive value. It's just as important to know when to protect your information as how to protect it in order to maintain that value.
Can We Talk?The best time to enter into a Non-Disclosure Agreement (NDA) with another party is when you enter into a business transaction with them, right? Wrong! The best time is right before you start having discussions with them in contemplation of a business transaction. These initial discussions are when you are likely to exchange confidential information about your products, services, technology, or business plans in order to determine whether entering into a transaction makes sense. An NDA allows the parties to speak relatively freely about what they each have to offer and have legal recourse if the other party misuses or discloses the other party's information in violation of the NDA terms. In the early stages of discussions, notwithstanding the NDA, it's often best to limit the kind of information you disclose to that which is mostly high level until the parties become more certain of entering into a transaction.
How Long Do I Have to Keep it a Secret?A typical NDA specifies two different timelines. The first one is the Term of the agreement, which is the time period during which the parties anticipate they will be having discussions and exchanging their respective confidential information with each other. It can be as short as a few weeks or as long as several years, depending on the transaction. The second timeline is the period of protection. This specifies how long you need to keep the information you've received from the other party a secret, or confidential. This will depend on the type of information and how long you believe it will have economic and competitive value for your company. A trade secret arguably has value indefinitely and therefore the other party may have to maintain its confidentiality for as long as it continues to qualify as a trade secret. Other types of information may only need to be kept confidential for a few years due to obsolescence. Keep in mind that the period of protection usually begins at the time the information is received during the Term of the agreement and continues after the agreement Term has ended.
Is Everything a Secret?Information that is disclosed by one party to the other party before or after the Term of the agreement is not protected. That's why it's important to enter into an NDA before you actually have discussions with the other party. Likewise, after the agreement Term has ended, there should be no further exchanges of confidential information unless you either extend the Term of the NDA in writing or enter into a new NDA to protect the additional information. The NDA also typically contains exclusions from what must be kept confidential, such as information the recipient already had prior knowledge of, information generally available to the public, information obtained from another source that had no obligation to keep it confidential, just to name a few.
Do it Right from the StartAn NDA is one of the simplest documents you'll use for your business, but is also one of the most important. It's relative simplicity lies in the fact that once an appropriate template is established for your business, it can be used over and over for different transactions with few substantive changes. It's importance is in being the contractual means for keeping your company's valuable information a secret. That's why it's best to work with an experienced attorney who has a good understanding of your organization's needs and can provide you with an NDA that will help you keep your confidential information protected as you grow your business.