|
Explanatory Notes
Nondisclosure Agreement
EXPLANATORY NOTES
Introduction
This Confidentiality Agreement is designed for use between two parties who are involved in discussions regarding a potential commercial relationship or who are involved in an existing commercial relationship, and who intend to exchange confidential information that they wish to protect against disclosure and/or unauthorized use. The parties are referred to generically as the "Disclosing Party" and the "Receiving Party", depending on which party's confidential information is being restricted. As such, depending on the context, the terms apply interchangeably to each party.
This form is intended for use in any state in the United States. However, as is the case with any agreement for use in the United States, regard must be had for the possibility of variations in the laws from state to state (which are commented on below where material). In the context of commercial relationships, the laws do tend to be substantially similar among the states, but there are areas of substantive difference. In this regard, the state of Louisiana stands out in particular, as it bases parts of its commercial and other laws on the civil codes rather than on the common law. When in doubt, it is imperative to consult with competent legal counsel admitted in the state in question.
This form provides a good starting point for preparing a first draft of a Nondisclosure Agreement. However, as with use of any form, it is very important to take the time to read the form in its entirety to ensure that it is customized appropriately for use in your individual situation. For all but the simplest of transactions, it can be anticipated that some customization will be in order; and as mentioned above, it may also be advisable to consult with competent legal counsel.
This form is styled very much on a U.S. model, with specific identification of the parties and definition of the business purpose of the Agreement in one or more recital clauses at the beginning of the Agreement. It is also customary to recite the mutual receipt of consideration. The length of the form and the tendency towards more detail may also come as a surprise to persons not accustomed to dealing with U.S. lawyers. That having been said, an attempt has been made to use "Plain English" and avoid the use of legalese wherever possible to do so.
NOTES ON USE OF THIS FORM
Parties
The parties' names and states of residence/incorporation (as applicable) should be inserted at the beginning of the document. The brackets and bracketed language that is redundant should be deleted. As mentioned above, the parties are referred to in the form generically as the "Disclosing Party" and the "Receiving Party", depending on which confidential information is being restricted, and so no more specific defined terms are necessary.
Recitals ("Whereas" Clauses)
The form can be used either in the context of discussions regarding a potential commercial relationship or in the context of an existing commercial relationship. The brackets and bracketed language that is redundant should be deleted.
Signature Blocks
Alternate signature blocks are included to accommodate execution by corporate parties and individual parties. These should be duplicated and/or deleted and customized as required. The italicized language in brackets is for guidance only and should be deleted.
Numbered Paragraphs
1. Paragraph 1.1 contains a relatively standard definition of "Confidential Information". This should be reviewed carefully for scope, to ensure that some type of information that is specific to the business of one of the parties has not inadvertently been omitted. Paragraph 1.2 contains a number of typical exclusions from the definition. Under paragraph 1.3, the parties can choose to treat the existence of their relationship as Confidential Information; depending on their choice, the brackets and bracketed language that is redundant should be deleted.
2. Paragraphs 2.1 and 2.2 contains the substantive restrictions on the use and dissemination of Confidential Information. Again, brackets and bracketed language that is redundant should be deleted.
3. This paragraph is intended to prevent one party from claiming intellectual property rights which are not expressly conferred by the Agreement.
4. Choice of law can be contentious in U.S. contract negotiations because there are 50 states to choose from, and each party may have an instinctive bias in favor of using its own state law. Unless there is some reason to pick another state's law (e.g., more favorable substantive law), it is customary to pick the laws of the state with which the drafting party is most familiar (again, usually its own state). This choice of law provision picks the laws of a single state (federal laws apply regardless of the state law election), which is most likely to be respected by the courts if it has some relationship to the contract (subject to application of mandatory principles of local public policy).
The dispute resolution provision offers litigation as the only option as arbitration (by its nature) tends to be unsuitable for settling disputes relating to nondisclosure agreements. The blank space in this provision is for the choice of forum for litigation. The provision also memorializes the parties' intent that specific relief (usually injunctions) be available in any court with jurisdiction if legally permissible.
In U.S. litigation, the prevailing rule is that each party bears its own litigation costs (subject to some narrow statutory and other exceptions). The language in paragraph 4.3 is intended to impose the so-called "English rule" to litigation costs.
5. This paragraph obligates each party to return materials containing Confidential Information of the other party upon request of the other party. It also causes the parties' obligations to survive termination of the relationship between them. Note that this draft does not anticipate a time limit on the parties' obligations under the Agreement; if one is desired, it should be inserted here. Again, brackets and bracketed language that is redundant should be deleted.
6. Paragraphs 6.1 through 6.5 contain a number of "boilerplate" provisions. It is possible to omit some of them, but any deletions should be thought through carefully in light of the tendency of U.S. courts to engage in activism in the interpretation of contracts and the possibility that state law does not cover the precise issue being addressed. Of particular note:
• Notice information should be completed in paragraph 6.1. Notice by e-mail could also be added as an option if the parties are comfortable with this method of notice.
• Paragraph 6.4 should not be deleted. Most states have moved away from an "all-or-nothing" approach to enforcing illegal or unenforceable contract provisions, and the severability provision in paragraph 6.4 is an attempt to instruct a court to adopt a flexible approach to the Agreement in the event that one or more clauses prove to be illegal or otherwise enforceable, provided that it is still possible for the essential intent of the parties to be achieved.
7. This paragraph is commonly referred to as a "merger" clause, and is intended to avoid pre-contract discussions from surviving into the written contract. It also stipulates that amendment and waivers of the Agreement must be in writing in order to be effective.
Back to top |
