01 / 24 / 2017

Non-Disclosure Agreements: How Drafting & Enforcing an NDA Can Protect Your Confidential Information

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If non-disclosure agreements (NDAs) are part of your business practices,you may believe that once an NDA is signed, you will have nothing more to worry about. However, beyond the act of implementing non-disclosure agreements, there is another part of the practice you need to consider.

If you did your homework when you and your attorney drafted the NDA (you did ask an attorney to help, right?), then you will have already visited some of the following issues. If not, it would be a good idea to take a closer look at the NDAs you are using to protect your confidential information immediately after you read this post.

If you do not currently have an attorney assisting you with your NDA, consult a business attorney in Dallasbefore proceeding with your agreement.

What is a non-disclosure agreement?

A non-disclosure agreement, sometimes known as a secrecy agreement, is a contract between two parties (Disclosing Party, Receiving Party) specifying information that one or both parties deem confidential and prohibiting its disclosure to an unauthorized party.

Most NDAs are used in an employer/employee situation, or when you work with an independent contractor. The agreement is in force for the term of the contract and, often, for a period of time afterward. The benefit of NDAs is the free flow of information within your company and with your partners, without worry of breaching the contract.

What is perhaps unfortunate is that many individuals who sign non-disclosure agreements see them as nothing more than formalities and believe the Disclosing Party or employer will not enforce it.

Drafting an Enforceable NDA

Whether a non-disclosure agreement is enforceable rests on the somewhat vague notion of “reasonableness.” The courts look at several factors when determining whether or not an NDA is reasonable and, therefore, enforceable.

  • Interests of the Disclosing Party in keeping the information secret
  • Period of time the information must be kept secret
  • Burden of compliance on the Receiving Party
  • Interests of the public

Also, the information must actually be confidential, as in unique or extraordinary. If the information is determined to be "not confidential,” all other NDAs in force at your company may be negatively impacted as more parties decide to test the waters in court.

Options for Enforcing Non-disclosure Agreements

  1. Your first determination is how far you are willing to go to enforce the NDA. What is your intellectual property worth to you? What are you willing to do if your NDA is breached? If you are not willing to enforce it, as some signatories assume, then your NDA is toothless and not worth the effort of asking people to sign.
  2. Next, find out what information you can cover with an NDA. The information must not be commonly known to the public or in use by other, similar businesses to yours. Be sure to check for state laws or guidelines that could affect which information can be defined as confidential and any legal action you plan to take.
  3. Define your confidential information and trade secrets in terms narrow enough to be defensible. Detail the information covered by the contract when parties are asked to sign and also announce that you will be sharing confidential information during new initiatives to make sure everyone understands that what you disclose must remain behind company doors.
  4. Establish a time frame for the term of the NDA. Some information ages quickly, such as digital marketing campaigns, while other information requires long-term protection (secret recipes). Make sure the NDA also covers a period of time after a relationship ends, such as termination of employment.
  5. Make legal costs the responsibility of the party that loses the lawsuit. This clause may keep some people from signing, but you are probably better off without them.
  6. Finally, keep an inventory of your confidential information and develop a way to monitor who accesses it, including the time of access. Once the project requiring the information is complete, gather back all trade secrets and terminate the electronic access of those who no longer need it.

NDA Lawsuits and Remedies for your confidential information

If you believe confidential information covered by an NDA has been disclosed improperly, your first step should be to consult a lawyer. Legal counsel can help you determine your legal rights, whether you have a case, and show you the rest of the process if you move forward.

An attorney can also help you build the case by identifying appropriate evidence and steps to take to learn how the information was leaked, evidence of the use of the information by unauthorized parties,  and the individuals involved. You may wish to hire an investigator to help.

Make sure you have a case because if you do not, you will be responsible for everybody’s legal fees, yours and theirs. You must be able to prove that the disclosed intellectual property has damaged your business in some way.

Place a monetary value on the disclosed information and the potential revenue loss due to the disclosure. Back everything up with evidence.

To start, a cease-and-desist letter; this is a formal request for the offending party to stop infringing on your rights. This may be enough to end the situation. If not, you have other options.

Your most powerful remedy is a combination of two elements:

  • Requirement for monetary damages
  • Injunction against further disclosure and use of the information

You can select either remedy individually, but each is not as effective alone.

The injunction should cover both the party that disclosed the information and any third parties that benefit from using it for current or future works.

Summation

If you routinely use non-disclosure agreements, you need to know they are enforceable, how to enforce them, and what remedies are available for a breach.

Make certain your NDAs are reasonable in a court of law and ensure they only cover truly proprietary information. Include clauses illustrating the actions that will occur if the contract is breached.  If the information is leaked, retain legal counsel and build a tight case with hard evidence. Ask for monetary damages and an injunction to protect your business from further harm. 

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