NDA review playbook template

What is an NDA?

A Non-Disclosure Agreement (NDA) is a legally binding contract that establishes a confidential relationship between parties, typically a party disclosing the information and a party receiving the information. This agreement ensures that any sensitive information shared between them is kept confidential and is not disclosed to unauthorized parties. 

Having an NDA in place allows parties to safely share trade secrets, proprietary information, and other confidential information required for business purposes like employment, partnerships, investments, or mergers and acquisitions. It builds trust between the parties involved and can help prevent competitors from accessing trade secrets, proprietary processes, or other valuable information that gives a company an edge.

NDAs may also be referred to as a Confidentiality Agreement, Confidential Disclosure Agreement, Proprietary Information Agreement, Secrecy Agreement, Non-Disclosure and Confidentiality Agreement, Non-Disclosure Covenant, Confidentiality and Non-Disclosure Agreement. These contract names are often used interchangeably with NDAs, but the specific terminology might vary based on industry practices or the particular nature of the agreement.

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What is the purpose of an NDA?

The primary purpose of an NDA is to safeguard confidential information. It’s a legally binding document that ensures that sensitive business information such as proprietary processes, customer lists, marketing strategies, financial data, and intellectual property remains secure. 

By clearly defining what constitutes confidential information and outlining the obligations of each party, an NDA helps prevent unauthorized disclosure and misuse.

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When should an organization consider using an NDA?

NDAs help safeguard and keep confidential proprietary information and trade secrets that are essential for a business to stay competitive. With an NDA in place, it makes it easier for two parties to share necessary information while fostering trust. An NDA might be helpful in certain situations where confidential information needs to be shared, such as:

• Business partnerships: When entering a partnership or joint venture.
• Employee agreements: When employees have access to confidential company information.
• Investor discussions: When sharing financial data with potential investors.
• Mergers and acquisitions: When disclosing sensitive company details during negotiations.
• Client or vendor agreements: When sharing proprietary processes or business strategies with clients or vendors.

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What are the different types of NDAs?

NDAs can be categorized into several types:

• Unilateral NDA: One party discloses information to another party, with only the receiving party being obligated to maintain confidentiality.
• Mutual NDA: Both parties disclose confidential information to each other and agree to protect it.
• Multilateral NDA: Involves three or more parties where at least one discloses information that must be protected by the others.

Mutual NDAs are becoming more common due to the increasing prevalence of collaborative business models and partnerships, where both parties need to protect their confidential information. Stringent regulatory requirements around data protection and privacy often compel businesses to adopt mutual NDAs to ensure compliance and secure sensitive information.

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What are the components of an NDA?

An effective NDA should include the following components:

• Identification of parties: Clearly specify the names and roles of all parties involved in the agreement. For example, if the NDA is between Company A and Consultant B, both should be explicitly named.
• Definition of confidential information: Definite what constitutes confidential information under the NDA. This may include trade secrets, financial data, customer lists, or proprietary processes. 
• Obligations of the receiving party: Detail the responsibilities of the party receiving the confidential information, such as maintaining confidentiality, using the information solely for the intended purpose, and limiting access to authorized personnel only.
• Duration of confidentiality: Specify the time period during which the information must remain confidential. This can be for a set number of years or indefinitely. 
• Exclusions from confidentiality: Identify any exceptions to what is considered confidential. Common exclusions include information that is already publicly known, independently developed by the receiving party, or disclosed through legal requirements.
• Return or destruction of information: Outline the requirements for returning or destroying confidential information upon termination of the agreement or completion of the purpose for which it was disclosed. 
• Consequences of breach: Describe the potential penalties and remedies in case of a breach, such as monetary damages, injunctive relief, or specific performance. 
• Legal provisions: Include governing law and jurisdiction clauses to determine which legal system will oversee the agreement and where disputes will be resolved. This section may also cover dispute resolution methods such as arbitration or mediation.
• Signatures: Ensure that the agreement is executed by authorized representatives of all parties involved in order for it to be legally binding.

By including these key components, an NDA can more effectively protect sensitive information and provide a clear framework for confidentiality between the involved parties.

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What are the limitations of NDAs?

While NDAs are powerful tools, they have limitations:

• Enforceability: NDAs may not be enforceable in all jurisdictions. Different regions have varying laws and regulations regarding the validity and scope of NDAs, which can affect their enforceability. For example, some states in the U.S. have limitations for NDAs, potentially rendering parts of an NDA invalid and unenforceable.
• Scope of protection and time limitation: Overly broad NDAs can be challenged and deemed unenforceable. NDAs cover only the information specifically identified and defined in the agreement, and excludes information not covered or disclosed in a manner not prohibited by the agreement. In addition, NDAs usually provide protection for only a specific time period (and some are statutory requirements by the state), after which the information may no longer be confidential. Once the NDA expires, the information can be freely disclosed.
• Proof and detection of a breach: It can be difficult to detect and prove breaches of confidentiality and obtain an injunction. 
• Not all information can be protected: An NDA cannot protect information that is already publicly known (e.g., information disclosed in a regulatory filing that are accessible via public records, general industry practices or widely recognized facts that are not specific to any one company or individual.) or becomes public through no fault of the receiving party. For example, if a company's trade secret is independently discovered by another party or published through unrelated research, the NDA cannot enforce confidentiality. NDA also cannot be used to conceal illegal activities or prevent whistleblowing, as public interest and legal obligations can override confidentiality agreements.
• Information in the public interest: Information that pertains to public health, safety, or welfare may not be shielded by an NDA. For example, if a company’s actions pose a risk to the public, employees or other parties may be legally compelled to disclose this information despite an NDA. Courts often prioritize the public's right to know over the enforcement of confidentiality in such cases, ensuring that crucial information impacting public interest is not withheld. Some states in the U.S. have enacted laws that limit the use of certain NDA provisions for employees.

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What are the consequences of breaking an NDA?

The consequences of breaching a non-disclosure agreement (NDA) can differ based on the specific terms of the agreement, the type of information disclosed, and the jurisdiction of the agreement. Some consequences might include:

• Legal action: The injured party can take legal action to enforce the NDA and seek damages for any losses incurred. This may involve filing a lawsuit, seeking injunctive relief to prevent further disclosure, or pursuing alternative dispute resolution methods. 
• Financial penalties: NDAs may specify  financial penalties for breaches, either explicitly outlined in the agreement or determined by a court during legal proceedings. These penalties are designed to compensate the injured party for any financial losses incurred due to the breach
• Reputation damage: Breaching an NDA can significantly harm an individual’s or company’s reputation, especially if sensitive or confidential information is involved. This damage can lead to a loss of trust, business relationships, and future opportunities. 
• Termination of employment or contractual agreements: Violating an NDA can result in the termination of employment or contractual agreements, particularly if adherence to the terms of NDA was a condition of employment or the contract. 
• Criminal charges: In some cases, disclosing certain types of information can lead to criminal charges, especially if the information pertains to national security, government secrets, or other highly sensitive data.

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What are the potential risks of an NDA?

NDAs are a valuable tool for safeguarding confidential information, but it's crucial to be mindful of their potential risks and limitations. Ensure your NDAs are precisely tailored to your specific needs and used appropriately. 

Potential risks relating to NDAs include:

• Legal challenges: NDAs may face legal challenges, especially if they are deemed overly broad or unreasonable.  NDAs need to be very specific about what information should be kept confidential. Overly broad definitions of “Confidential Information” may make the NDA unenforceable in court. Proper drafting is crucial for an NDA to hold up legally.
• Complexity and cost: Drafting and enforcing NDAs can be complex and costly.
• False sense of security: NDAs cannot be the only line of defense. Over-reliance on NDAs without proper security measures and compliance policies can lead to information leaks.
• Limits on coverage: NDAs only bind the parties who sign the agreement. Information disclosed to third parties such employees or contractors may not be protected unless they also sign separate NDAs. 
• Reputation damage: While an NDA may serve as a deterrent and provide for legal recourse for a breach, it cannot fully protect or repair reputational or financial harm caused by the disclosure of trade secrets or sensitive information.
• Reluctance to sign: Some parties, such as venture capitalists or large companies, may refuse to sign NDAs, seeing them as an obstacle to deal-making.
• Burdensome obligations: Confidentiality obligations under an NDA can be onerous, exposing the recipient to risks of inadvertent breach through improper handling of information.
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What is the typical process for thte intake of NDAs for legal review in an organization?

The typical legal intake process for NDAs in a company involves several key stages:

1. Submission: The requesting party submits the NDA request through a designated system or email, such as Streamline AI’s legal intake and triage automation software. Streamline AI’s intake system automatically consolidates NDA requests from multiple channels into one source-of-truth and routes NDAs to the right party for review. A standardized NDA intake form helps gather the necessary information efficiently, minimizing back and forth. Access a sample NDA intake form here.
2. Initial review: The legal team conducts an initial review to ensure all necessary information is included and the request is complete. This step is crucial for identifying any missing details early on.
3. Assessment: The legal team thoroughly evaluates the terms and conditions of the NDA, focusing on key provisions to mitigate potential risks and liabilities. This ensures the document aligns with applicable laws and safeguards the company's interests.
4. Revisions/redlines: If necessary, the legal team revises the NDA to meet company playbook standards and strategic objectives, ensuring the adequate protection of sensitive information.
5. Approval: The revised NDA is sent for internal approval, if necessary. This step ensures that all relevant parties have reviewed and agreed to the terms.
6. Negotiation: The NDA is shared with the counterparty for review and negotiation. The legal team handles any back-and-forth adjustments, striving for terms that are favorable and compliant. Mutual NDAs often reduce negotiation back and forth compared to unilateral NDAs. Since both parties agree to the same terms of confidentiality, there's a built-in sense of fairness and balance that simplifies discussions and mitigates concerns over one party having more favorable terms than the other. As a result, the negotiation process is typically smoother and quicker, allowing both parties to focus on the core aspects of their collaboration.
7. Final review: Once terms are agreed upon, a final review is conducted to ensure accuracy and completeness. This step confirms that all negotiated terms are properly documented.
8. Execution: The NDA is signed by authorized representatives of both parties. This formalizes the agreement and makes it legally binding.
9. Storage: The executed NDA is stored in a secure, accessible location for future reference. Proper storage ensures that the document can be easily retrieved when needed.

By standardizing this intake process with an intake form with Streamline AI, in-house counsel can effectively identify and mitigate risk, reduce the need for additional follow-up, and expedite the finalization and execution of NDAs.