Understanding NDAs: The Definition of Confidential Information and why it matters

A key aspect of any Non-Disclosure Agreement (NDA) is the definition of confidential information. For both the disclosing and receiving parties, this definition determines what must be protected and for how long. A vague or overly broad definition can create unnecessary risks and obligations. Here’s what both sides should consider when drafting or reviewing an NDA:

1.    Scope of Confidential Information

  • NDAs often define confidential information broadly, covering business, financial, technical, and strategic data.
  • If NDAs are signed in VC transactions, the scope is usually very limited and often only entails information about a specific product/service.
  • Some agreements classify all disclosed information as confidential, while others require it to be specifically marked as such. 🏷️
  • Ensure that verbal disclosures are only protected if confirmed in writing within a reasonable timeframe. 🗣️

✅ Pre-NDA Disclosures ⏳

  • Be cautious if the #NDA states that confidential information includes anything disclosed before the agreement was signed.
  • Such clauses create uncertainty, as it may not be clear what was shared before execution.
  • If pre-NDA disclosures must be included, ensure that the specific information and the date of disclosure are explicitly listed in the agreement. 📋

2.    Exclusions from Confidential Information ❌

  • ⚠️ Not all shared information should be classified as confidential. Common exclusions include:
  • Publicly available information 📢 #PublicDomain
  • Information already in the recipient’s possession before signing the NDA (unless explicitly listed with a disclosure date (see above)) 📂
  • Independently developed information that does not rely on disclosed data 🛠️
  • Information received from a third party without breaching any confidentiality obligations 🔄

✅ Ensuring clear and reasonable exclusions helps avoid unnecessary restrictions on information already known to the recipient.

✅ Ensure that exclusions also apply to Representatives, i.e., third parties to whom the recipient is permitted to disclose confidential information.

 

3.    Considerations for the Disclosing Party 🔒

  • The disclosing party should ensure that confidential information is clearly defined to avoid ambiguity.
  • Properly label documents to confirm confidentiality if the NDA requires marking.
  • If verbal disclosures are confidential, establish a process to confirm them in writing within the agreed timeframe.
  • Limit exclusions to protect confidential information effectively and require written evidence for exclusions.
  • Restrict the recipient from disclosing information to third parties without prior consent.
  • Require that Representatives of the recipient are bound by confidentiality obligations.
  • Specify remedies available in case of a confidentiality breach, including legal recourse and financial penalties.
  • Consider including a provision requiring return or destruction of confidential information upon termination of the NDA.

Special Consideration: Trade Secrets 🏛️

  • #TradeSecrets often require stronger protection than general confidential information.
  • Trade secrets remain protected beyond the term of the NDA according to applicable laws.
  • Recipients should ensure they understand which information qualifies as a trade secret and its legal obligations. ⚖️

📖 This is part two of our series on key #NDAConsiderations. Stay tuned for the next topic: the obligations and limitations of the receiving party. 📚✨

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