Protect Your Business: 5 Can’t Miss NDA Clauses

Secure contract
Examining a contract with padlock to represent security and confidentiality

A non-disclosure agreement (NDA) can be a great way to assist in protecting your business’s valuable confidential information, trade secrets, and intellectual property. A poorly drafted NDA can fail to do what is intended, and could become ineffective if not completely unenforceable. There is no one-size-fits-all NDA, but the following clauses will help to ensure that your NDA works as intended

1. Definitions

Explicitly define the confidential information that is to be covered by your NDA. Failure to do so can lead to a disagreement or misunderstanding about what was meant to be protected, which may invalidate the NDA. It is in the interests of both parties to ensure that each side clearly understands what is meant by confidential information.

2. Permitted Usage or Purpose

When can each party use the confidential information? The knee-jerk reaction to this question is to answer “never,” but that is unrealistic, otherwise the companies would never have shared their information in the first place. If there is some limited situation in which confidential information can be used, such as during the business transaction which the NDA covers, this needs to be clearly stated.

3. Compelled Disclosure

This is another clause that both parties may think they would prefer not to have, but is essential. There are some situations when confidential information needs to be shared with a third party. Usually, compelled disclosure is limited to when a party is legally compelled to disclose confidential information, but, depending on the unique situation at hand, there may be other factors which should be allowed to compel disclosure, such as the disclosure of information to ensure compliance with the rules and regulations of government bodies.

4. Return of Information

This often-forgotten clause can help to prevent disputes at the end of the relationship between two parties. What happens to the confidential information at this point? Usually, this should mean the return or deletion of all confidential information. In the absence of this clause, the other party may be entitled to hold on to your confidential information indefinitely, leaving your information vulnerable to intentional or accidental misuse.

5. Reverse Engineering

A prohibition against reverse engineering is especially important for businesses looking to maintain their competitive advantages, especially when working with technology. This clause should, in addition to prohibiting the other party from directly using your confidential information, prevent them from reverse engineering your work product into a separate invention designed to have a similar purpose. Reverse engineering clauses can also protect more abstract intellectual property, such as work processes and systems. These clauses need to be carefully worded to protect your company’s technical advantages as broadly and completely as possible.

We Can Help

These five protections do not contain everything needed to create a strong NDA: without taking into consideration the unique aspects of your business and what your business would like to protect, no NDA can be optimally effective. A business attorney with experience drafting strong non-disclosure agreements should always be involved in the drafting and execution of all of your business’s NDAs. If you would like to meet with one of our attorneys to discuss an upcoming or in progress non-disclosure agreement (or review an older one you have in place), please contact us with any questions by clicking here or by calling our office at 832.510.2900 to schedule a complimentary consultation.

One thought on “Protect Your Business: 5 Can’t Miss NDA Clauses

  1. Great highlights of NDA / Confidentiality Agreements. Reverse Engineering can often be forgotten.

    How do you feel confidentiality & commercial in confidence arrangements are working generally in the market at the moment?

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