Non-Disclosure Agreements – A Tool for Protecting Intellectual Property

Non-disclosure agreements (NDA) are widely used to protect confidential information that is being shared between two parties.

The technology industry is notorious for using non-disclosure agreements. In many cases, they are justified since many of today’s inventions or industrial processes cannot be covered under a traditional patent and therefore can only be protected though confidentiality. Non-disclosure agreements are the tool of choice.

Confidential information could include engineering specs, illustrations, product specifications, software, databases, know-how, customer data, suppliers, financial information, and anything else economically valuable to your business (including your reputation).

On the other hand, there are many companies and their employees who throw around non-disclosure agreements without even knowing if they really need it. Even in situations where they are needed, it is common to get a generic NDA where there was exactly zero effort to customise the agreement. The result is an NDA that does not deal with the specific risks that may arise from that interaction. 

The fact is that many companies do not have formalized policies of why, when, and how NDAs should be used. It is not uncommon to see different people within the same company who have very different approaches to using NDA’s. Some play it loose and fast with the information they provide to third parties while others hand out boiler plate NDA’s to be signed by anyone they encounter.

Most business executives will agree that confidentiality agreements are a necessary tool to protect their intellectual property. What often is missed is whether they are being used properly. This starts with ensuring that each employee understand why we use them, when to use them, and how they should be used.

Why should we use NDA’s?

It is important that employees understand the three general reasons of why we use non-disclosure agreements.

• Protective: We use an NDA to ensure that there are sufficient protections in place before you share confidential information with another party. Ex. A mining supplier working with an agent or a distribution partner.
• Contractual: We use an NDA when we have an existing obligation to a third party. This obligation may require us to put confidentiality obligations in place with any subcontractor or business partners who may access this information. Ex. Mining companies will have strict confidentiality agreements with their mining technology suppliers. Those suppliers would require third party developers or employees to sign an agreement to ensure the information that comes from the mining companies is sufficiently protected.
• Strategic: We can also use an NDA to gauge whether a party is truly interested and serious about discussions with your company. Ex. When we are exploring the possibility of a joint venture with another company.

When do we use NDA’s?

• Discussing Intellectual Property – whether a new idea, software or database, it is vital to ensure you have an agreement in place.
• Agents or distributors – will almost certainly need to have access to your confidential information such as customer lists, technical specfications, etc.
• Onboarding New Employees or Contractors – Employees and Contractors commonly have access to confidential information, such as customer list, marketing tools, company procedures and specialized techniques.
• Other Cases – Business merger, sales. or acquisition discussions, Product development or manufacturing discussions, Technology development and technology outsourcing, Licensing negotiations requiring disclosure of confidential business information, Third party service agreements involving access of sensitive customer data

How shoud NDA’s be used?

It is important that employee understand how an NDA is to be used. In some cases, a generic NDA is more than enough. In other cases, it will not offer the protection needed for those specific circumstances and should be customized. Some of the key points that will need to be considered are –

• Identification – Who are the parties involved, who are the disclosing parties.
• Definition – What kind of information should be kept secret? Here you want to be clear but broad. We suggest being specific about what details you don’t want disclosed to ensure the other parties understand what information they are obligated to keep private.
• Exclusions – What type of information is not considered confidential? For example, information that was publicly known when the NDA was signed or that becomes publicly known through no fault of the receiving party.
• Terms – How long should information remain confidential? (i.e., the term of the agreement)
• Breach – What happens if there’s a suspected breach of the NDA?

Conclusion

Even with the best policies in place, companies will struggle to be consistent with managing intellectual property across the whole organization.

Small to medium size companies will often rely on boiler plate confidentiality agreements since they do not have a dedicated in-house legal team to support them. Large companies may have policies in place, but employees may be reluctant to get their already over-extended corporate legal team involved if they know that the turnaround time will be substantial.

The first step is for companies to evaluate all the possible scenarios where an NDA may be needed in the regular running of the business. This could include when hiring employees, hiring third party contractors, working with partners, etc. You can then develop standard agreements for all those possible scenarios. The agreements will not be widely different but will be built for purpose to deal with the specfic issues of each. 

The next step is to train your employees to understand why NDA’s are needed, when to use them, and how they should be used. It is important that employees feel they also have a legal contact that can assist with reviewing NDA’s when needed. This is particulary important for transactions/interactions where the risks may be larger due to the nature of the business being discussed.

Ax Legal supports our clients by ensuring they have access to on-demand reviews. Our commitment is to review and customize agreements within 24 hours to ensure that we are not slowing down the requester. This takes the pressure off in-house counsel who may be busy with mission critical tasks while also giving confidence to those who need the reviews since they know it will not slow down their process.

Ax Legal is an advisory firm that works with foreign companies in Latin America. Our team of legal and commercial advisors have a distinguished track record of helping foreign technology and services companies to grow and operate in Latin America. Over the years, we have worked with starts up, mid-size businesses, and publicly listed companies. The one common factor that connects are clients is that they are leaders in their field, providing innovative technologies and services to the industrial sectors.

To better understand how we can support you in the Region, please contact Cody Mcfarlane at cmm@ax.legal