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Limit the Confidential Information You Receive

This is a reminder to think twice before you sign the NDA. The legal language of the NDA is often the least of my concerns when I am advising a client. Most NDAs, at least those drafted by an attorney, address the main points but often are not specific to your company’s situation.

Circulating an NDA before discussions is a routine transaction to protect your information. It’s often too early to know whether anything will come of talks with the other party, and thus assigning value to the transaction is a guess at best. It is no wonder that parties to the NDA avoid hiring an attorney for something so routine. In addition, the routineness of the transaction means that the parties rarely have an appetite for NDA negotiations even when attorneys are involved. This makes your next chess move even more important.

The information to be exchanged in my concern. Of this, I trust you will take steps to protect your own information. Any toddler has the brainpower to tell you “it’s mine.”

What really matters then? I am concerned specifically about the information you will receive. You can’t unlearn it. Years later, when this information forms the strategic core of your business (and valuable information has a way of doing that), in bet-the-company litigation, do you want to be forced to attempt to prove that the employees in your organization that are credited with conceiving the information had absolutely no access to the confidential information your company received? Or where exactly you learned this information? Litigation based on stolen confidential information and trade secrets is messy, protracted and expensive and typically occurs after you have forgotten the particulars of the situation and the involved employees have moved elsewhere.

Therefore, what I am about to suggest is beyond routine. In fact, it is burdensome. And you will need to expend further efforts for information you will be receiving that is similar in nature to your current or planned development efforts or core to your company’s business strategy.

What steps can you take prior to receiving third party information?

Don’t sign an NDA until you have an initial meeting to understand further what you would be learning if the parties decide to move forward.

  1. Decline unnecessary confidential information from third parties before they disclose it. Don’t receive trade secrets whenever possible. Think twice about receiving third party information that is core to your business. Your policies should reflect these choices.

  2. Some NDAs additionally cover confidential information from third parties that you have no relationship with. Know who these parties are and what type of information you are likely to receive before entering into the agreement. Considering not allowing this information.

  3. Keep strict controls for who in your organization can sign NDAs and make sure they are trained. Identify potentially riskier situations and maintain tighter controls for these.

  4. Ensure your employees and contractors have an obligation to keep information that your company receives confidential.

  5. Maintain internal logs of your own information, trade secrets and inventions.

  6. Conduct internal trainings about the importance of confidential information and trade secrets and the company-specific controls around them. Limit access to those who need to know.

  7. At the end of the business relationship, properly dispose of confidential information and document you did so.

In the NDA itself, what steps can you take prior to receiving third party information?

  1. Keep the NDA’s definition of what is included in confidential information very narrowly tailored to the information you need to receive. The default is broad language.

  • This will be a difficult conversation to have with the opposing party. For example, let’s say you smartly decide to keep the NDA limited to what is explicitly written in a provisional patent application of the other party in pre-licensing discussions. Here, the evidence about what was disclosed and received is clearly in writing, so the lack of ambiguity lessens the chance for a future dispute. However, the other party will rightfully question your motivation. In addition, the other party will want broader coverage in case anything discussed is not written in the patent application.

  1. Require exchanged information to be marked confidential and force the creation of a written log of what information was exchanged. Comply because your lack of compliance will be easy to prove.

  2. Make sure your NDA has the standard carve outs for information that is received by third parties, that is generally known or becomes public knowledge or that is independently developed.

  3. Shorten the period of confidentiality in the NDA.

  4. Consider not allowing the opposing party to disclose third party information.

  5. Dismiss the above concerns because an NDA is mutual at your own peril.

Protect your future by practicing good information hygiene now. Don’t wait until you have cavities, gum disease and bad breath before you start flossing regularly.

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