Copyright 2008 The Prinz Law Office.1 Getting Started with Drafting a Nondisclosure Agreement: A...

Copyright 2008 The Prinz Law Office. 1

Getting Started with Drafting a Nondisclosure Agreement: A Brief Guide to the Elements and Key Considerations

By Kristie D. Prinz

Founder, The Prinz Law Office


Elements of the NDA

I. Defining the Information to be Protected Does the Information Need to be Stamped

“Confidential” if written, or if oral, identified as “Confidential” at the time of disclosure and followed up with a written document identifying it as “Confidential”?

Does a specific definition explain what information the parties are agreeing to protect?


Elements of the NDA

II. Defining Information which is Excluded Is either party’s information excluded from

protection, or is the protection mutual? What, if any, information which falls under the

definition, is excluded from protection? This typically includes information that is already in the public domain or information which the recipient obtains by another means than through disclosure by the other party.


Elements of the NDA

III. Defining the Level of Protection Required What level of protection is the receiving party

required to afford the information disclosed under the agreement? What degree of care must be used by the receiving party?

Who can receiving party share the information with? What terms can the receiving party agree to share

the information under?


Elements of the NDA

III. Defining the Level of Protection Required What happens if the receiving party receives

a subpoena or other government demand to produce the information?

Under what terms can receiving party release that information under subpoena or government demand?

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Elements of the NDA

IV. What is the term of the agreement to protect the information?

Can either party terminate the agreement early? If so, under what conditions?

Are there clauses that should survive termination? Can the agreement be assigned? If so, are there any

competitors whom you would not want to have access to this information? Any divisions or subsidiaries of the same company?

Elements of the NDA

V. Governing Law and Disputes What is the governing law? How will disputes be resolved? If the agreement is

with overseas company, what language will be used to resolve the disputes?

Who should receive notice of any dispute? What is the permitted method of notice? (Generally you want to receive a formal document so that the document is given immediate attention upon receipt)



Key Considerations in NDAs

I. Establishing that the Information Intended to be Protected by Agreement will Actually be Protected

If a stamping/written follow-up requirement is going to be relied upon, are there procedures in place to ensure that the stamping/follow-up will happen as required? If not, the information will not be protected.




Has the other party inserted any language into the agreement to make the protections ineffective?

The most common “trick”: inserting retained knowledge clauses, which exclude from protection any information that an employee “remembers.”




Also common: inserting language into the agreement that limits protection to information that is protected by a patent or copyright registration, which results in most information going unprotected.

Note: signing an ineffective agreement is often worse than having no agreement at all, since employees think that they are protected when they are not


II. Confirming that Anyone who will have Access to the Information is Addressed

Has the correct agreement been used for the appropriate business entity? (i.e. if directors will have access to the information and you use the LLC agreement, then you have a problem)

Have contractors been considered? Subsidiaries and their employees?

Note: disclosures of information to third parties not addressed by agreement may breach the agreement



III. Determining Whether it is Necessary to Clarify How the Other Party Can Use the Information to be Disclosed

Consider whether the other party may want to use the information to develop a competing product, and clarify what uses you consider to be a breach and what uses you consider acceptable. Common issue: reverse engineering, disassembling, or studying parts to independently develop a product.



IV.Ensuring that there is a Clearly Defined Term to the Agreement

Perpetual agreements or agreements that end “x” years after the parties stop exchanging information are hard to renegotiate, also can be hard to determine what information is covered by the agreement

Easy to end up with multiple confidentiality agreements with overlapping terms and conditions



V. Is the Governing Law, Method of Dispute Resolution Advocated by the other Side Acceptable?

Are you familiar with the contract, trade secret laws and litigation procedures of the jurisdiction that the other side is seeking? If not, it may not be a good idea to agree to the governing law/dispute resolution in that jurisdiction.

If foreign, will the proceeding be in English?



CONTACT INFORMATIONKristie D. Prinz, Founder

The Prinz Law OfficeP.O. Box 1594

Los Gatos, CA [email protected]

www.prinzlawoffice.comPhone: 408.884.3577 Fax: 408.317.0316

Copyright 2008 The Prinz Law Office.1 Getting Started with Drafting a Nondisclosure Agreement: A...

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