negotiate-nda

Negotiate NDA

Review and negotiate a non-disclosure agreement to appropriately protect confidential information without creating unworkable obligations.

Why This Is Best Practice

Adopted by: ABA Business Law Section, corporate legal departments at Fortune 500 companies, M&A and technology law practices Impact: ABA surveys show that overly broad NDA definitions are the most litigated NDA provision; the Uniform Trade Secrets Act requires reasonable measures to protect trade secrets — an inadequate NDA can forfeit trade secret protection in litigation.

Why best: NDAs that are too broad are unenforceable; NDAs that are too narrow fail to protect legitimate confidential information. The negotiation objective is a precisely scoped agreement that can actually be complied with and enforced. The residuals clause and the definition of confidential information are the two highest-stakes provisions in most commercial NDAs.

Steps

1. Determine NDA type — Mutual (both parties share confidential information — typical for partnership discussions, M&A due diligence) vs. one-way/unilateral (only one party discloses — typical for vendor evaluation, investor pitch). The disclosing party prefers broader protection; the receiving party prefers narrower obligations.
2. Review the definition of confidential information — Assess whether it is: (a) marked-required (must label documents "Confidential") — receiving party prefers this; (b) category-based (all info in certain categories is confidential) — disclosing party prefers; (c) reasonably understood (broad, often overbroad). Negotiate for a reasonable scope.
3. Audit the exclusions — Standard and non-negotiable exclusions: (1) information already known to receiving party before disclosure; (2) information independently developed by receiving party; (3) information received from a third party without restriction; (4) information that becomes publicly known through no fault of receiving party. Ensure all four are present.
4. Review the residuals clause — A residuals clause permits the receiving party to use information retained in unaided memory (residuals) for any purpose; common in technology M&A. If present: receiving party favors it; disclosing party should limit it to genuinely non-tangible memory, not deliberate memorization.
5. Check the term — NDA duration: 2–5 years is standard for commercial discussions; perpetual for trade secrets (required for UTSA protection of genuine trade secrets). Negotiate: shorter term for receiving party, longer/perpetual for disclosing party.
6. Review permitted disclosures — Confirm: required court/regulatory disclosure is permitted (with notice to disclosing party); disclosure to employees and contractors on need-to-know basis is permitted with flow-down obligations.
7. Assess remedies provision — NDAs routinely include injunctive relief language (money damages are inadequate for breach); ensure both parties can seek injunctive relief, not just the disclosing party.
8. Confirm governing law and jurisdiction — Choose the law of a state with favorable trade secret and NDA enforcement (Delaware, New York, California each have distinct nuances); confirm venue is practical for both parties.

Rules

• Never sign an NDA with a non-compete clause buried in confidentiality language without flagging it for legal review; NDAs occasionally include disguised non-competes.
• Always include all four standard exclusions; an NDA without them is commercially unreasonable.
• Require return or certified destruction of confidential materials upon request or termination of the relationship.
• For technology NDAs, explicitly exclude open source code from confidentiality obligations.
• Never include a residuals clause that permits the receiving party to deliberately memorize disclosed information; limit to genuinely inadvertent memory retention.

Examples

Residuals clause — negotiation: Vendor NDA contains: "Receiving party may use any Residuals for any purpose." Disclosing party redline: "Receiving party may use Residuals (meaning information retained in the unaided memory of individuals who have had access to Confidential Information, without reference to such Confidential Information) solely in the ordinary course of its business, provided that Receiving party shall not be relieved of any obligation hereunder to the extent it takes deliberate steps to memorize Confidential Information."

Common Mistakes

• Accepting mutual NDA when the deal is one-directional — Mutual NDA creates obligations on the disclosing party that serve no purpose; match NDA type to actual information flow.
• No practical compliance mechanism — An NDA requiring every casual conversation to be labeled "Confidential" within 48 hours in writing will not be complied with; impractical requirements lead to inadvertent breaches.
• Forgetting to include disclosure to professional advisors — Lawyers and accountants reviewing the transaction need to see confidential information; ensure advisors are included in permitted disclosure.

Law disclaimer: This skill encodes professional best practices for educational purposes. It is not legal advice. Consult a licensed attorney before making legal decisions.