In brief:
- A number of key elements, such as carefully defining what constitutes “confidential information”, are paramount to gaining the benefits of entering into a non-disclosure agreement or confidentiality agreement (NDA).
- Considering the desired (and available) remedy for breach of an NDA can also be the difference between an NDA being valuable to you, or being worth little more than the paper it’s written on.
- In this article, we set out the top four things to consider and look out for in your NDAS.
In the momentum of forging a new deal, it’s easy to overlook the importance of confidentiality with your potential partners. This could result in exposing your business to the risk of loss of privacy of information that may be at its core.
We set out below the top four things to consider and look out for in your NDAs.
1. Who gets the benefit?
An NDA may be mutual or unilateral. Unilateral obligations are appropriate when only one party is disclosing information, such as when a party is sharing information about its business to potential investors, or to service providers. In this case, only one party will be disclosing confidential information, and the other (the recipient) will be restricted under the NDA from disclosing that information to third parties, or otherwise using it other than for the envisaged, and expressly permitted, purpose.
Mutual obligations are appropriate when both parties are disclosing information to each other, such as when two companies are coming together in a joint project, or are collaborating in some way on the development of a new concept or technology. In these types of situations, both parties will be disclosing confidential information, and will each want to protect it by entering into a “mutual” NDA.
2. Defining “confidential information”
A clear and comprehensive definition of confidential information must be included in any NDA. There are three basic approaches to defining confidential information: (1) providing a general description; (2) providing a specific description; and (3) providing that confidential information is that which is expressly marked as “Confidential”. There are advantages and disadvantages to each approach.
- A General description of confidential information could include “marketing information, sales strategies, procurement processes, manufacturing arrangements, customer lists, and financial data, and could be a good strategy to protect information that may change from time to time through the relationship. A general description should be broad enough to include information that is not yet created, known or anticipated at the time the NDA is entered into. Be aware however that general descriptions could lead to some legal and/or practical risks, such as making it potentially difficult for a recipient to fully understand its obligations and to identify what exactly is and isn’t “confidential information” for the purposes of applying the standards set out in the NDA.
- A Specific description will expressly identify the information provided/exchanged and considered confidential. A specific description can be useful in a targeted, shorter-term engagement between parties, for a particular reason, but would not be the best choice in a longer-term relationship where the type of information intended to be protected is expected to expand or change, such as in a collaboration or JV scenario, or in an employer/employee relationship.
- Marking dictates that only information that is marked “confidential” will be treated as such under an NDA. The benefit of this approach is that there is less likelihood of debate over whether information is or is not confidential and thereby within the remit of the restrictions and obligations contained in the NDA. The drawback to this approach is the administrative burden and practical feasibility of actually marking all relevant items as confidential, especially where they may be intangible or bulky in nature. This could also detract from creating an environment for holding productive discussions between the parties, which is likely, in most cases, to be desired and ultimately necessary.
3. How long should the term of the NDA be?
Confidentiality obligations are not typically intended to terminate when the relationship ends. A disclosing party will prefer that confidentiality obligations last at least as long as the information remains confidential which could be as short as a few months or in perpetuity. The receiving party would prefer that the term is as short as possible, so that its obligations under the NDA are absolved quickly. The duration of the obligations should be considered in each case to ensure your business is protected to the extent required and intended under the NDA.
4. Jurisdiction and enforcement of remedies
Under an NDA, where losses are likely to arise that may be difficult to quantify (e.g. indirect losses arising from reputational damage, or loss of goodwill in intellectual property rights) the preferred form of relief might be an injunction. Parties should be mindful that, save in a small number of specific circumstances, the UAE courts may not grant injunctive relief, instead awarding damages to a successful party which are direct and evidenced. A disclosing party ought therefore to carefully consider the enforceability of its preferred remedy. This often is an overlooked element of the NDA, which, if not appreciated and inadequately provided for in the drafting, could render the NDA of little use to a disclosing party.
For more information, please contact us on sectors@hadefpartners.com.