Creating an Enforceable Non-Disclosure Agreement (NDA)

By John D. Pemberton, Intellectual Property Attorney

Non-disclosure agreements (NDA), also called confidential disclosure agreements, confidentiality agreements or secrecy agreements, are a legal contract between parties whereby basically the parties agree not to disclose information covered by the agreement, confidential materials or knowledge the parties wish to share with one another.

Because a NDA is a contract, there are two elements each NDA must have. The first is that the parties must be identified. Typically the person's name or the name of the business entity that is a party to the contract will work. The second is what is known as consideration. Consideration is something that is done or promised in return for a contractual promise. The actual definition of consideration is much more complex and many first year law students have spent countless hours trying to learn what consideration really does mean, however, for purposes of this article, we will define consideration as a future promise, by each party, that is used to support the contract.

If an NDA simply said:


"I, John Doe agree not to disclose the information I am being shown and will keep it confidential."

the NDA would most likely not be valid because it would not have the requirements to be a valid contract. First, while it does say one of the parties to the contract is John Doe it does not say who the other party is. Secondly, it does not state the consideration or promise in return that is used to support the contract.

To at least be a valid contract, the agreement should read, something like,


"John Doe agrees to show Jane Doe confidential information for her to review and evaluate and in return, Jane Doe agrees to keep the information confidential."

The above NDA at least names the parties and states what the consideration is. However, no attorney would ever advise their client that it would be acceptable to sign an agreement like that because the agreement is very vague and lacking several important provisions.

Therefore the following is a summary of the very bare minimum of what really should be in an NDA. At a minimum, the NDA should be in writing and state the:

* parties to the agreement;

* definition of what is confidential, i.e. the information to be held confidential. Modern NDAs will typically include a laundry-list of types of items which are covered, including unpublished patent applications, know-how, schema, financial information, verbal representations, business strategies, any documents marked confidential, etc;

* consideration or mutual promises of each party

* obligations of the recipient regarding the confidential information, such as to use the information for valuation purposes or testing purposes only; and

1. term (in years) of the confidentiality, i.e. the time period of confidentiality;

The following is a summary of other provisions that could be in a NDA. It is worth noting that this is only a summary and there are many other provisions that may be necessary for certain types of NDAs.

* the term (in years) the agreement is binding;

* permission to obtain ex-parte injunctive relief

* the exclusions from what must be kept confidential.

Typically, the restrictions on use of the confidential data will be invalid if

* the recipient had prior knowledge of the materials;

* the recipient gained subsequent knowledge of the materials from another source;

* the materials are generally available to the public;

* the materials were obtained illegally; or

* the materials are subject to a subpoena. In any case, a subpoena would more likely than not override a contract of any sort;

* provisions restricting the transfer of data in violation of national security;

* types of permissible disclosure - such as those required by law or court order.

* what is to be done with the confidential information after the agreement expires or after a certain period of time or specific tasks are completed.

Please remember that the above is only a quick summary of what must be and what should be in an NDA. It is always best to ask an attorney to review any NDA before using it. Some attorneys will even review the NDA for free and many will send you a copy of their standard NDA form. Caution should be exercised about using an NDA acquired over the Internet unless an attorney has reviewed it first.

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