To pursue corporate relationships and transactions, it is very common for parties to enter into a confidentiality agreement on a non-disclosure agreement (NDA). The primary intent of executing such an NDA is to facilitate exchange of confidential information among parties and to that the confidential information disclosed thereunder will be safeguarded during the term of and (sometimes even) post-termination of the NDA.
Typically, there are certain provisions in an NDA which enable the discloser in protecting confidential information from unauthorised use or disclosure by the recipient, the latter’s representatives and any third parties and to limit liability of the contracting parties (as applicable) with respect to confidential information.
We are discussing some of these provisions in this article as under:
Return or destruction of confidential information
Discloser typically shares the confidential information to recipient for a designated business or professional purpose. Therefore, from discloser’s perspective, it is crucial to ensure confidential information is safeguarded and secured after accomplishment of intended purpose of disclosure of confidential information.
Prospect to return or destruction of confidential information is instrumental in ensuring recipient will not make any unauthorised use of confidential information post completion of intended purpose of disclosure of confidential information or termination of the NDA.
Triggering point: There are different triggering points wherein discloser can make recipient return or destroy confidential information. The following are such triggering points:
(a) Upon termination or expiry of the agreement.
(b) Upon termination or expiry of discussions between discloser and recipient.
(c) Upon request (oral or written) of the discloser or its representatives.
From discloser’s perspective, triggering of return or destruction of confidential information obligation based on termination or expiry of the agreement or discussions will be beneficial, so that discloser has no need to specifically request recipient to return or destroy confidential information as the recipient is implied to do so following the occurrence of stipulated event.
From recipient’s perspective, return or destruction of confidential information obligation qualified by a written request of discloser is useful to recipient as there is no onus on recipient to return or destroy confidential information unless and until the same is requested by the discloser in writing.
Return or destruction of notes
Notes means any notes, summaries, analysis, materials, etc. prepared by recipient or its representatives based on the confidential information. Inclusion of return or destruction of notes depends on parties. Generally discloser prefers to include the same and sometimes recipient prefers to exclude the same.
Certification or confirmation
Proof of such return or destruction of confidential information can be established with an obligation on recipient either to certify or confirm such return or destruction of confidential information. This will make discloser feel comfortable to learn its confidential information is either returned or destroyed.
From liability perspective, certification of return or destruction of confidential information is a bit more obligatory in nature. Confirmation of return or destruction of confidential information is less obligatory. For recipient’s benefit, certification or confirmation of return or destruction of confidential information can be tied to a written request of the discloser. This will ensure that recipient will be required only to confirm or certify of return or destruction of confidential information only if requested in writing by the discloser.
Retained confidential information
Like every rule comes with an exception, in certain cases, recipient will be exempted from this obligation to return or destroy confidential information. This is to enable recipient to retain confidential information in permitted cases for legal, compliance and regulatory purposes. Typically, a recipient will be permitted to retain copies of confidential information as required by law, compliance or record retention policies or as part of automated archival or backup copies.
To ensure recipient will not make use of retained copies of confidential information beyond permitted purposes, discloser may prefer to include a provision of restricted access to retained copies and use such copies for permitted copies only. This is to ensure only certain permitted personnel (i.e. legal, compliance or IT personnel) will have right to access such retained confidential information and such permitted personnel will further use such retained copies of confidential information only for permitted purposes only.
Survival of confidentiality obligations with respect to retained copies of confidential information is another parameter that will influence time period for which recipient will have to protect such retained copies of confidential information.
Typically, obligations (confidentiality, non-use or other, as applicable) with respect to retained copies of confidential information may survive:
(a) In perpetuity.
(b) For so long as the confidential information is retained by recipient.
(c) For the term of the NDA.
Term and protection period
Term of NDA is time duration for which the NDA will be in effect.
Protection period will be term for which the confidentiality obligations will be in effect without giving consideration to the fact that NDA is in effect or expired.
Triggering point: For an NDA to become effective or application of confidentiality obligations may begin from the effective date of agreement or date of disclosure or receipt of confidential information.
Tenure: Term or protection period can be a fixed term or perpetual. For protection period, sometimes confidentiality obligations will survive for so long as confidential information is retained by recipient.
Representations and warranties
Common representations and warranties in NDAs are discloser’s representation or warranty as to discloser’s right to disclose confidential information—this is to comfort the recipient that discloser is competent to disclose the confidential information to recipient.
One common caveat in representation and warranty segment is that information is provided on “as is” basis. This reflects that discloser passed on confidential information to recipient as it is without substantiating veracity of confidential information as it will be highly impossible for discloser to guarantee every piece of confidential information is true and accurate as the confidential information may be complied from different channels over which the discloser may have no control.
Among other representations and warranties, NDAs may contain the following:
(a) Parties’ authority to enter into the confidentiality agreement.
(b) Parties will comply with applicable laws and rules.
(c) Execution of the NDA will not violate any third party agreements or intellectual properties.
Generally, will contain disclaimer about accuracy or completeness of confidential information. Core purpose of such disclaimer is to say discloser does not warranty or guarantee about accuracy or truthfulness of confidential information as said above, confidential information will be compiled or received from multiple sources.
Disclaimer of liability: From discloser’s perspective, liability disclaimer is crucial as discloser will disclaim liability for any claims based on use of confidential information by recipient. However, this can be caveated for recipient’s benefit, with addition of “except for matters specifically agreed in the agreement”. This caveat will ensure that discloser will be liable for any claims based on matters specified in the confidentiality agreement and recipient will have leverage to make successful claims based on matters specifically agreed therein.
It is crucial for discloser to have right to seek injunctive relief or specific performance of the confidentiality agreement to prevent unauthorised use or disclosure of confidential information by recipient or its representatives or to limit damage related to any commission of unauthorised use or disclosure of confidential information.
From discloser’s perspective, qualifiers (without necessity of posting bond or without necessity of proof of damages) will make life of discloser easy to seek injunctive or other relief without the necessity of proof to backup damages claimed and without necessity of giving security with respect to such claim.
This is a special right given to discloser to seek remedies for any unauthorised use or disclosure of confidential information. At the same time, this right can also be mutual to discloser and recipient as a non-breaching party to claim relief for commission of breach of confidentiality agreement by breaching party.
Compensation for breach
Typically, in NDAs, either party does not prefer to have an obligation to indemnify the other party for any breach of the confidentiality agreement. Instead, a party may agree to pay compensation to a prevailing party in a litigation as awarded by court of competent jurisdiction in a final, non-appealable order. Such compensation may include reimbursement of legal and miscellaneous expenses also. One way to limit liability for paying compensation is qualifying such expenses and fees by caveat of reasonable and documented. As a reason, non-prevailing party will only have to pay such expenses provided they are reasonable in nature and substantiated by proof of documentation.
Bhumesh Verma is Managing Partner at Corp Comm Legal and can be contacted at firstname.lastname@example.org.