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Keep it Confidential! Non-Disclosure Agreements

Whether they call it a Confidentiality Agreement or a Non-Disclosure Agreement (NDA), many businesspeople begin their business deals with a simple contract governing delicate information that might be exchanged between parties. Companies holding trade secrets, employers hiring or terminating employees, and partners exploring possible business relationships constantly find themselves in dire need of a well-written Non-Disclosure Agreement.

Although a standard New York NDA is a page or two in length, it can pose serious legal implications for both parties.

  1. WHAT ENTAILS “CONFIDENTIAL INFORMATION”?

Your NDA must define with utmost detail the types of information that should be held confidential. This is especially true if you or your corporation/company are obliged to safeguard any disclosed information. Always avoid committing to an overstretched definition of “Confidential Information” that can create unnecessary stress of secrecy or which might further complicate your future business prospects.

Always endeavor to make it clear should exchange of any confidential information under your NDA is unilateral. You should consider adding a provision stating that (a) You don’t need any of the other party’s Confidential Information, and (b) the other party won’t give you any.

2. WHAT ARE THE TIME LIMITS?

Before committing to signing an NDA in New York, you should make sure that all your responsibilities regarding confidentiality have well set and clear time limits. The two most crucial timelines to look out for are:

  • Disclosure period: The length the parties are intending to exchange Confidential Information
  • Confidentiality period: The length the parties have to keep the disclosed Confidential Information a secret

The longer the disclosure period, the more Confidential Information the disclosing party can generate. Similarly, the longer the confidentiality period, the more time the receiving party will have to watch the exchanged information. An extension of the time limit increases the administrative burden on the recipient.

Businesses with trade secrets must be careful of the time limits in their NDAs. Courts have determined that trade secrets disclosed under an NDA expire when the confidentiality period ends. To avoid this risk, the trade secret owner must include two crucial periods for confidentiality in their NDAs: (i) an unlimited duration for all disclosed trade secrets and (ii) a separate, specified time limit for all Confidential Information under the NDA.

3. WHAT HAPPENS IF SOMEONE BREACHES AN NDA?

When a New York NDA is breached, the discloser has a right to make claims against the offending party for breach of contract. Other claims might include breach of fiduciary duty and misappropriation of trade secrets. If a third party was involved in the breach, a separate cause of action for tortious interference of a contract could be ruled out.

Should there be a leak or a potential leak of Confidential Information, courts have hesitated to force the breaching party to keep quiet or leave their new job unless the information in question is also a trade secret. Mostly, money damages are the only alternative.

Because it’s usually difficult to assign a monetary value to the harm that a partner, client, or employee would cause by leaking such crucial information, you should consider having a liquidated damages clause in your New York Non-Disclosure Agreement. The clause should provide a reasonable estimate of the harm that you or your business would face in the event of a breach.

Don’t be hoodwinked by the short stature of a Non-Disclosure Agreement. Discuss your NDA with qualified legal counsel to ensure the agreement is well-drafted in scope, subject matter, and duration.

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