Common Mistakes with Non-Disclosure Agreements
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Little attention is given to Non-Disclosure Agreements (NDAs). They are rarely properly reviewed, and very little time is spent negotiating them. However, they are often the very first contractual connection with your future partner. It is highly valuable to make sure that your NDA covers your needs and most of all, that you are confidential information is well protected. When properly used, they preserve the unique aspects that make your business work, and the long-term value of your company.
To ensure your NDA has teeth, keep in mind the following points to protect your interest - View PDF
The scope creates an issue of “R&D contamination”
Although you might be willing to define all information that you disclose to a receiving party as confidential, avoid using a catchall clause. It is advisable to limit the confidential information to what is truly necessary to be kept a secret. Since you will not have the right to use the received confidential information for other purposes than the ones described, you need to avoid contaminating your own research pipeline with third party confidential information. Hence, it is then essential to limit the scope as much as possible. Run the scope of your NDA with your IP department to avoid R&D contamination.
"First we sign an NDA, then we can talk" or "We signed an NDA, so we are okay!"
These are very common attitudes. The business sometimes think that once an NDA is in place, they can disclose everything. However, only the information falling within the scope can be considered as confidential. Additionally, this information must be marked confidential in order to be considered as such, so make sure that you do so. The same applies to the information disclosed verbally, which must be confirmed afterwards in writing. NDAs usually provide a time limit for this.
Likewise, if there are any trade secrets, those should be marked differently as “Trade Secret” as the law treats confidential information and trade secrets differently. One significant difference is that it’s well-accepted for trade secrets to last indefinitely.
Keep in mind that the best way of keeping information confidential, is to disclose as little as possible.
Venue and applicable law in NDA 's are often poorly or not negotiated at all
Think twice about where you are going to handle the legal burden and costs associated with the enforcement of your rights when breach and misunderstanding occur.
Additionally, the choice of venue and applicable law in NDA will create a precedent for your follow-up contracts with the same party, such as R&D or license agreement.
Notice of disclosure
If by mistake the receiving party disclosed your confidential information, the chance is high that you will notice it far too late or even never. This can be addressed by including an obligation of the receiving party to notify disclosing party immediately upon discovery of any unauthorized use or disclosure of the confidential information or any other breach of the NDA, and an obligation to cooperate with the disclosing party in a reasonable way to help disclosing party regain possession of the confidential information.
Return of information
At the end of the agreement, the confidential information will need to be returned or destroyed by the receiving party. Your non-disclosure agreement should contain a clause stipulating exactly how and when this should occur. This can largely depend on the circumstances of your relationship.
It’s very difficult to completely destroy or return every information that’s shared electronically. But this type of clause has the advantage to alert the receiving party that all received information must be returned or deleted, and prevents the receiving party from using the information in daily of business.
Keeping track via a legal database and setting-up legal triggers is an elegant way to follow-up diligently on all yours and your partner's obligations.
Remedies and injunctive relief in case of suspicion of potential breach
A clause stating what are the fair and reasonable remedies in case of a breach from the receiving party’s part should be included. An up-front mutual understanding of what constitutes a fair remedy is important. Costs related to a breach can be difficult to estimate and highly debated.
Think about including the potential consequences of a breach and explicitly protect your rights to seek fair and reasonable remedies, including without limitation injunctive relief and/or specific performance or such other equitable relief as may be appropriate to prevent a breach or threatened or continuing breach of the NDA, and to secure the enforcement of the NDA, without the necessity of proving actual damages.
In summary NDAs are often the very first contractual connection with your future partner. It is highly valuable to ensure that your NDA covers your needs and most of all, that you are confidential information is well protected, as well as the long-term value of your company.
At Partnering4Biotech, we integrate NDA and contract monitoring in order to build the stones needed for a strong long term relationship with your partner while retaining the long-term value of your company.
We are happy to provide you with more information about our services.
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