Non-Disclosure Agreements & Confidentiality
Non-disclosure agreements are hardly unique to the technology industry. But when you cannot walk into a Facebook or Google office without signing one, the sector develops a bit of a reputation.
The reality is that this is an industry where products and business models are constantly changing and quality talent is in short supply. Having control over your company’s ideas and processes, with your employees and partners (who will come and go), is an essential part of commercialising an idea over the long-term.
What is an NDA?
A Non-Disclosure Agreement (“NDA”) is also known as a Confidentiality Agreement. It is an agreement used between two parties, when they need to talk openly with each other, without their ‘secrets’ being passed on. Technology lawyers describe these secrets as ‘privileged information’. Unlike patents, NDAs can last indefinitely. While the exact origin of the practice is unknown, the legal mechanism was reportedly popularised in the 1970s by a particular industry that wanted to protect their Intellectual Property. That sector was, you guessed it, the tech sector.
If you want to grow your business, you need to bring in new people and partners. It is almost impossible to do so without divulging the critical information that gives you a competitive advantage. In these situations, NDAs, written by a tech startup lawyer, provide you with the legal protection you need. They prevent the other party from sharing your information with any other person or entity.
Of course, the same works in reverse. The entity dealing with your organisation would share similar concerns. In this case, the NDA can restrict both parties instead of just one, through a “Mutual Non-Disclosure Agreement”.
What is in an NDA?
It is impossible to measure the exact number of NDAs that are currently on foot as they are almost always baked into employment contracts. In Australia, there are over 700,000 workers in the technology sector, in the US that figure is 5.2 million. Only a small fraction of those workers would not have an NDA in place.
NDAs set out the type of information that will be described as “Confidential Information” in the context of the transaction between the parties. Most importantly they identify the rights and obligations of the parties in relation to the disclosed information.
This will include exclusions from confidentiality, time periods for which confidentiality applies, and the purpose for which confidential information can be used.
NDAs are particularly important for the following situations (and everything in between):
- Beginning your Start-up – The ideas that you plan to bring into fruition in the form of a start-up will need to be protected; as you go about discussing your business ideas, seeking advice, and hiring any outside help.
- Mergers & Acquisitions – There is a lot of information regarding both the seller and buyer or merging parties that needs to be kept confidential during and after the deal. Failing to maintain confidentiality can put the deal in jeopardy.
- Capital Raisings – You will disclose a lot of information about your business to investors to give them the opportunity to make an informed decision and carry out their due diligence. Therefore, it is vital that they sign an NDA to assure that they can be trusted with this information.
- Engagements with Third-Parties – Running a business can involve help from outside parties such as independent contractors. It can also involve engagement with third-parties, such as vendors or partners, to help provide your product or service to your clients or customers. All the information shared, to make the magic happen, will need to be held confidential by all parties involved.
How Biztech can help
NDAs have certain key terms that lawyers for technology companies will focus on to make sure the NDA delivers what it needs to deliver:
- Definition of Confidential Information – The definition of ‘Confidential Information’ covers all the information and materials that are protected as privileged or confidential by the NDA. Therefore, make sure that you adequately provide for the type of information you want protected.
- Use and Purpose – This is an important clause to cover as it provides for the ways in which the Confidential Information can be used by the party receiving it and the approved purposes of use.
- Exemption Clauses – You will most likely need to negotiate and provide for exemptions to your obligations in the NDA. , particularly those that burden you, or which cannot be satisfied in the circumstances. For example, the disclosure of Confidential Information as required by laws and regulations.
- Term – Your information should be protected for an adequate period of time. This can be achieved by including a ‘Term’ clause that sets out the duration for which the rights and obligations under the NDA will apply. As mentioned, unlike patents, NDAs can last indefinitely, and it can be an administrative burden keeping track of what information is confidential and the obligations that come with that.
- Governing Law and Jurisdiction – This clause must be included to ensure that the laws applying to the NDA are those of a convenient jurisdiction to both parties.
Would you like our support?
At Biztech Lawyers, we enable you and your start-up, to keep your confidential information confidential. Need our support? Whatever the stage of your journey, get in touch.
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