skip to main content
May 2024

Three Points to Note Before Signing a Non-Disclosure Agreement

By Patrick Westaway

Business relationships so often begin with a non-disclosure agreement (NDA) and yet these documents are rarely given much thought, setting a poor standard for the relationship to follow. Moreover, NDAs are frequently drafted to prioritize convenience over efficacy, negating the NDA entirely and giving a false sense of security to any who would rely upon it. If one wishes to truly protect their intellectual property and other confidential information, the following points must be understood.

“Confidential Information”. During discussions between organizations, information and documents are shared by various individuals on both sides as they focus on the job at hand. In doing so, they do not check to see whether every document disclosed had the word “confidential” written at the top of the page, nor do they reduce to writing every piece of information that had been disclosed verbally, print “confidential” at the top of the page and email the result to the person with whom they were speaking in order to then advise that such information is confidential. And yet, this is how many, if not the majority, of NDAs are written with the result that any document or information not so identified is excluded from the scope of the NDA. The absurdity should be readily apparent and can be explained only by a disconnect between the responsible lawyers and the real world in which their clients live and work. It is better by far to define “Confidential Information” as “all information and materials, whether in paper, electronic, verbal or other form of any nature whatever, provided by or on behalf of either [Party ‘A’] to [Party ‘B’] that ought to be considered as confidential to the disclosing party from its nature or from the circumstances surrounding its disclosure”. The specific categories of such information and documentation as are relevant to the circumstances would, then, after due consideration, be enumerated for greater certainty.

Performance Standard. Having defined “Confidential Information”, it is then necessary to set the performance standard. Often, an NDA will say only that confidential information must be kept confidential, which begs the question as to what confidentiality requires. Often, an NDA will say that confidential information must be kept “strictly” confidential, which precludes any internal sharing of the confidential information at all. And, often, an NDA will include the performance standard within the list of specific prohibitions and authorized uses to which it applies. Best practice involves setting the standard as one of commercial reasonableness which, in no event, shall be less than the standard applied by the recipient for the protection of its own confidential information. The list of specific prohibitions and authorized uses would then be qualified by reference to this performance standard.

Termination Date & Return of Confidential Information. Substantially all NDAs include a termination date. Once that arbitrary date passes, the receiving party is free to do as it will with the disclosing party’s confidential information (which could thereby preclude any subsequent patent filings by the disclosing party). Some NDAs combine a termination date with the omission of any obligation to return confidential information while many that do include such an obligation nevertheless claim the right to keep all information which happened to be backed up on its server. Still other NDA’s include an obligation to return confidential information but only if asked and without any automatic obligation upon termination, placing the onus on the disclosing party to pursue the return of its confidential information. There is no reason for any of this other than the misguided notions that all contracts must have a termination date or that the omission of a termination date entails perpetual obligations. Both positions are false. First, there is nothing in the Common Law (which governs not only in Canada, the U.S. and the UK but throughout much of the world) which requires commercial agreements to include a termination date. Quite the opposite, agreements usually continue for so long as the situation to which they apply continues. NDAs are no different. Recognizing this, perpetual obligations are avoided simply by returning or destroying the subject confidential information. Best practice, then, is to recognize this and let the NDA continue to apply for so long as the receiving party retains confidential information.

The above points are certainly not the only issues to consider before signing an NDA but they are by far the most common and egregious. And, while the best protection is always to avoid disclosing confidential information to begin with, if one is to trust to a contract then one must read, consider and understand that contract’s meaning and effect. Oftentimes, the survival of a business depends on it.