Non-Disclosure Agreement | NDA: What Should Be Included?
Checklist and tips, plus a free downloadable template.
A non-disclosure agreement (NDA) is also known as a Confidentiality Agreement (CDA). In all cases, it is a document signed by two or more parties, allowing them to exchange confidential information. On this page, we want to introduce the NDA and explain what should be included.
At the end, we summarize everything in a clear checklist, and we provide a downloadable example of an NDA as a Word document. You can customize it for your own use. NDAs are widely used in the business world, and there are many variations. Almost every NDA is different. There is no universal standard, so it's helpful to know what to look for when you're asked to sign one.
First, a little background. There is no single, definitive NDA. NDAs come in many forms and are widely used. For example, when you're trying to interest a potential investor in your innovative technology, or discussing a possible partnership with a fellow entrepreneur. NDAs do not have standard texts and are typically customized. Large companies may send you their standard NDA to sign, which can seem odd, but if there's nothing unusual in it, you can go ahead and sign. Changing a large company's standard NDA is rarely successful. But what should always be included? Below is a list of key points.
Parties Involved
Every agreement starts with the “undersigned,” which lists the parties involved, including their full names, addresses, and representatives who are authorized to sign. Make sure that the representative is indeed authorized to sign. This often goes wrong in research institutions where the researcher signs the NDA without proper authorization. The legal form of the company and its registration number with the Chamber of Commerce may also be included.
Sometimes the agreement is one-sided, naming only one party. This would mean that only one party's information is considered confidential, which is usually unreasonable. You should not accept such a situation.
The Purpose of the NDA
Usually, under the heading “whereas,” the purpose of the agreement is outlined. The reason for signing the NDA is that confidential information will be exchanged. It's important to describe the purpose as specifically as possible. Simply stating that the parties will exchange confidential information is insufficient. If the purpose is too vague, a company might claim that after talking to you, they can't work with anyone else. For example, if you have technology for voice recognition and are approached by a company that wants to integrate your technology into their platform, the NDA should specify your technology and the company's platform.
Make sure the NDA does not obligate you to enter into any further agreements, like a partnership or purchase agreement. That's not the purpose of an NDA. If you decide to collaborate, a separate agreement should be made.
Ownership of Confidential Information
Ensure that it is stated that all shared information remains the property of the disclosing party. A license might be granted to the receiving party for the purposes outlined in the NDA. Be cautious with software; specify what can be done with it. If your technology is protected by a patent or you are applying for one, mention it, along with the title and number.
Scope of Confidentiality
Usually, in a separate article filled with formal language, it is extensively described that the parties will make every effort to keep the information provided under the agreement truly confidential. In addition, a confidentiality agreement should also specify with whom the information may be shared. Often, the information needs to be discussed internally with colleagues to determine if they can use it. Sometimes these colleagues are named along with their positions, but it may also be stated that confidentiality is imposed on all employees of the respective company and any third parties consulted. It is not necessary for the employees of the receiving company to personally sign the confidentiality agreement. The company is responsible for ensuring that confidentiality is properly safeguarded through internal procedures. Since the information will be shared internally, it is wise to include in the agreement that written confidential information is identifiable as such because it is marked as confidential. This is particularly important for emails. An email is sent so quickly and is often not recognized as confidential.
Verbal information is a separate issue. Sometimes confidential information is exchanged verbally, and the person sharing it only realizes afterward. Include a clause stating that verbal information must be confirmed in writing within a specific time, such as seven days.
Usually, the confidentiality agreement includes a provision that in the event of a legal procedure (investigation by the judiciary or a competent regulatory authority), the confidential information may be handed over to the authorities. In this exceptional situation, the information remains confidential and should not be included in the list of reasons why and when the disclosed information is no longer confidential. It should be stated that the provider of the information must be informed in such a case. Alternatively, the party required to disclose the information should make efforts to limit or delay the disclosure as much as possible. This allows you to decide how to proceed to prevent your confidential information from being, for example, discussed in a courtroom with a public audience (for instance, by starting an injunction to prevent the disclosure of the confidential information).
When Confidential Information is No Longer Confidential
Developments move quickly, and it may happen that the fantastic idea is now simply available for purchase or that it can be found somewhere on the internet. It is not reasonable to demand that information which enters the public domain should still be kept confidential, and that's why this point is usually explicitly included as an exclusion clause. However, it can be useful to note that this does not apply when it's only a part of the confidential information. And combinations of pieces of information that are individually available in the public domain can form a new application that no one else has thought of yet.
Duration and Termination of the NDA
There must always be an article that specifies how long the agreement is valid. It also states under what circumstances it is no longer valid (for example, in the case of bankruptcy or if the parties mutually agree that the agreement is no longer valid).
Disputes and Choice of Law
It is always indicated under the law of which country the agreement falls, and sometimes also in which place a dispute will be brought before the court. You can imagine that if you enter into a confidentiality agreement with, for example, a French party, you would prefer not to stand before a French court with this party. And that your French opponent would not want to stand before a Dutch court with you. If you can't agree on this, you might choose a more neutral court, for instance in Switzerland. Finally, sometimes it is also stated how high the penalty will be per breach of the agreement. There are parties who include this, but it also happens that they say: "We'll leave that up to the judge."
A more exotic clause is that it is sometimes explicitly stated that the agreement falls under, for example, Dutch law but with the exclusion of the so-called Vienna Convention. In English, this is the UN Convention for the International Sale of Goods, or CISG. This international treaty from 1980, to which many countries are parties, deals with the delivery of goods in international trade and applies by default unless it is explicitly excluded. However, it doesn't really need to be included in a confidentiality agreement and fits more within a company's general terms and conditions.
After Signing the NDA
It has happened to me also: you've signed, started a great project, and the collaboration is going so well that there's already talk of a new project. In the meantime, a few years have passed, and no one is thinking about the validity period of the confidentiality agreement. So, remember to extend it in time if necessary. Large companies sign thousands of agreements, and the legal department should keep track of when they expire. You can imagine that in smaller companies and startups, with frequent changes in management, this can easily go wrong.
Checklist: Main Points of Attention in an NDA
Signatories
Which specifically named parties will sign, and are the signatories actually authorized to do so?
The Purpose of the Confidentiality Agreement
You don't just exchange confidential information without reason. Talking under confidentiality serves a purpose, and that purpose must be described in the NDA as precisely as possible.
Mutuality of the Confidentiality Agreement
It is not reasonable to demand that only one party's information remains confidential while the other's does not. Therefore, make sure that the NDA is always set up as a two-way agreement so that all parties can both provide and receive confidential information.
Ownership of Information
Make sure it is established that all exchanged information remains the property of the providing party. Confidentiality is crucial when applying for a patent, and this is further explained on the patent application page.
If your confidential information is (partially) covered by a patent, ensure that the title and number of the patent are mentioned.
Confidential Information Must Be Identifiable as Such
Agree that information is only considered confidential if it is marked as such. Also, think about verbally given information (whether given later on). How will this be covered?
The Scope of Confidentiality
Who else is allowed to receive the confidential information (for example, a colleague), and how is this arranged?
No Further Obligations
Make sure it's only about exchanging information and that nothing else is agreed upon in the NDA (such as a collaboration or a mandatory purchase).
When Is Confidential No Longer Confidential?
For example, it may happen that the idea is now simply for sale. By establishing when confidentiality no longer needs to apply, you can avoid much debate.
Mandatory Disclosure to Authorities
What happens if an authority (such as the judiciary) requests the information that has been agreed to be kept confidential? Establish what the party that must disclose the information should do (for example, warn the other parties).
Duration and Termination of the Confidentiality Agreement
How long is the agreement valid, and under what circumstances does it no longer apply (such as in the case of bankruptcy)?
Be Cautious With Software Exchange
Explicitly state what can and cannot be done with it. For example, think about limiting the number of copies and preventing reverse engineering.
These are the main points. When you ensure that the above items are included in the confidentiality agreement to be signed, you've covered the most important matters. Confidentiality agreements are important legal documents, so make sure to store them well.
By ensuring that the above points are included, you cover the most important aspects of an NDA. NDAs are important legal documents, so make sure to keep them safe. Below is a free downloadable template you can use:
Free downloadable template of an NDA
This was it. After this rather long list, below is a free downloadable Word document as a template for your convenience. You are free to adapt and use the document as you prefer. You have to specify the [bold issues between square brackets] and send de document to your counterpart.
Free Downloadable template of an NDA
Good luck with your NDAs! They are a vital tool for inventors and innovative entrepreneurs.