3. Overview
• Introduction and overview ; the importance of NDAs/CAs
• Initial Considerations
� Simple vs complex covenants
� when to use mutual vs unilateral obligations
• Typical provisions for NDAs, including drafting and negotiating tips (both from
the receiving and disclosing party’s perspective)
� Scope
� Recipient Representatives
� Term
� Recipient Use / Confidentiality Obligations; No obligation to disclose
� Required Disclosure / Legal Compliance
� No reps/warranties / no agreement
� Liability
� Remedies
• Other threshold issues – Restrictive Covenants / Residual Clauses
• Return or destruction of confidential information
• Practical tips for inhouse counsel
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6. First determine the context of the arrangement and ask yourself:
� Do you want to receive confidential information from this party?
� Do you even need an NDA (i.e. is the data/information protected under an
existing agreement; will no significant data be disclosed until a service
agreement is in place)?
� Who is the counterparty? Is it a potential competitor? Public or private
company?
� Purpose / Proposed arrangement? – simple or complex?
� Unilateral or mutual? Differences in parties’ obligations?
� Scope – how sensitive is the information being disclosed?
� How long should the term run for?
� What other “typical” provisions do we need?
Initial Considerations and Context
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7. Simple vs Complex
• Examples:
� Contractor only working alongside staff of the corporation – Only simple
confidentiality agreement required
� Technology/IP exchange or in connection with an acquisition – More
complex agreement may be required
• Complex covenants are generally safer and afford the parties
more protections
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8. Mutual vs. Unilateral
• Ask yourself: Are both parties going to provide information
to each other?
• Mutual –
� Most commonly used
� Negotiation of mutual agreements will likely be quicker and more fair
� Allows for later role reversal, rather than negotiating a new
agreement
• Unilateral –
� Used when disclosing party does not require information from
recipient
� Gives disclosing party more flexibility
� Disclosing party may not want to be obligated to treat receiving
party’s information as confidential and wants to minimize obligations
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10. Typical Provisions for NDAs
• Scope
� Definition of confidential information
� Exceptions to that information
� Recipients / Representatives
• Term
• Recipient use/confidentiality obligations
� No obligation to disclose
• Required disclosure/legal compliance
• No representations and warranties / no agreement
• Liability
• Remedies for breach – injunction/specific performance
• Other threshold issues – restrictive covenants / residual clauses
• Return/Destruction of Confidential Information
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11. Scope of “Confidential Information”
• Depends on sensitivity and the type of information being
disclosed.
• From the discloser’s perspective – Broad application to as
much information possible
� All information regarding the discloser held by the recipient, not just
provided by the seller
• From the recipient’s perspective – Narrow
� Should only apply to information provided by the discloser
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12. “Confidential Information” –
Breaking it all Down
What Could be Considered Confidential Information?
• General Examples (written and verbal)
� Trade secrets
� Proprietary information
� Knowhow
� Business plans; financial information
� Customer/vendor lists
� Marketing strategies
� Secret formulas; communications
� Business practices and strategies, etc.
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13. “Confidential Information” shall mean any and all information,
data or knowhow, whether technical or nontechnical, as well as
any sample or model, which relates to the Receiving Party’s
products and is disclosed pursuant to this Agreement by the
Receiving Party.
Confidential Information (cont’d)
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14. • Confidential Information means all information (whether obtained in
writing, verbally, by observation or otherwise), [aside from Excluded
Information – i.e. your standard exclusions or explicitly carvedout], of
or relating to the Discloser [relating to the Business Purpose] [that the
Discloser designates as being confidential] , including information
relating to the Discloser’s business opportunities, customers, marketing,
personnel, salaries, operations, business plans, costs, sales, income,
profit, profitability, pricing, ideas, knowhow, designs, developments,
creations, inventions, works, trade secrets, demonstrations, programs,
software, codes, routines, computer systems, technical information,
data, formulas, analyses, methods, processes, techniques, drawings,
sketches, experiments, moulds, jigs, dies, prototypes, samples,
products, equipment, tools, machines, research and development.
Confidential Information (cont’d)
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15. • Standard Exceptions:
� Information in the public domain (other than as a result of disclosure
by the Recipient or its Representatives)
� Information already known or independently developed by the
recipient or its representatives without access or use of confidential
information
� Information subsequently disclosed by a third party in good faith who
is lawfully in possession of the information and not in breach of any
obligation
� Disclosure compelled by law or court order (or exchange rules with
public companies – i.e. material changes, etc.)
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Confidential Information (cont’d)
16. • From the discloser’s perspective
� Should limit who is allowed to see the confidential information (only
representatives) and anyone viewing the information should be bound by
the terms of the confidentiality agreement.
� Consider whether information could be disclosed to affiliates, lender’s
counsel, third party investors (i.e. private equity), etc.
• From the recipient’s perspective
� Should be allowed to disclose the information to anyone necessary to
complete the transaction (e.g. legal counsel, financial advisors or
accountants, lenders, coinvestors – anyone who may provide financing to
the recipient), without a direct agreement between them and the
discloser visàvis confidentiality.
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Recipient Representatives
17. • Options to bind Representative to terms of the NDA:
� Each third party Representative executes an NDA in
“substantially similar form” as the subject/master NDA, or a
counterpart/joinder thereto
� Each Representative executes a short agreement acknowledging
familiarity with the NDA and agrees to act in accordance with its
terms
� Recipient is required to make its Representatives aware of the
confidential nature of the confidential information
• Recipient is typically liable for breaches of the agreement by
its Representatives.
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Recipient Representatives (Cont’d)
18. Putting It All Together
1. Confidential Information. Except as set forth in Section 2 below, “Confidential Information” means all
nonpublic, confidential or proprietary information [designated as such by the Disclosing Party] disclosed
[before], on or after the Effective Date, by either Party (a “Disclosing Party”) to the other Party (a
“Recipient”) or its affiliates, or to any of such Recipient’s or its affiliates’ employees, officers, directors,
partners, shareholders, agents, attorney, accountants, or advisors [on a strictly needtoknow basis]
(collectively, “Representatives”), [whether disclosed orally or disclosed or accessed in written, electronic
or other form of media, and whether or not marked, designated or otherwise identified as
“confidential,”] [including, without limitation:
� all information concerning the Disclosing Party’s and its affiliates’, and their customers’,
suppliers’ and other third parties’ past, present and future business affairs including, without
limitation, finances, customer information, supplier information, products, services,
organizational structure and internal practices, forecasts, sales and other financial results,
records and budgets, and business, marketing, development, sales and other commercial
strategies;
� the Disclosing Party’s unpatented inventions, ideas, methods and discoveries, trade secrets,
knowhow, unpublished patent applications and other confidential intellectual property;
� all designs, specifications, documentations, components, source code, object code, images,
icons, audiovisual components and objects, schematics, drawings, protocols, processes, and
other visual depictions, in whole or in part, of any of the foregoing;
� any confidential information included with, or incorporated in, any information provided by
the Disclosing Party to the Recipient or its Representatives; and
� all notes, analyses, compilations, reports, forecasts, studies, samples, data, statistics,
summaries, interpretations, and other materials (the “Notes”) prepared by or for the Recipient
or its Representatives that contain, are based on, or otherwise reflect or are derived from, in
whole or in part, any of the foregoing.]
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19. 2. Exclusions from Confidential Information. Except as required by applicable federal, provincial or
local law or regulation, the term “Confidential Information” as used in this Agreement shall not
include information that:
� at the time of disclosure is, or thereafter becomes, generally available to and known by the
public other than as a result of, directly or indirectly, any violation of this Agreement by the
Recipient or any of its Representatives;
� at the time of disclosure is, or thereafter becomes, available to the Recipient [on a non
confidential basis] from a thirdparty source, provided that such third party is not and was
not [(or who the recipient does not know is)] [(or who the recipient has no reason to
believe is)] prohibited from disclosing such Confidential Information to the Recipient by a
[legal, fiduciary or] contractual obligation [to the Disclosing Party];
� was known by or in the possession of the Recipient or its Representatives, as established by
documentary evidence, prior to being disclosed by or on behalf of the Disclosing Party
pursuant to this Agreement; or
� was or is independently developed by the Recipient, as established by documentary
evidence, without reference to or use of, in whole or in part, any of the Disclosing Party’s
Confidential Information.
Putting It All Together (cont’d)
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20. • Can be as long as the parties want (1 year, 2 years, 3+ years)
• Discloser will prefer to keep information confidential indefinitely
• Personal information should be kept confidential indefinitely
• Certain covenants within the NDA may have a shorter/longer
duration (i.e. nonsolicitation and noncompete provisions)
• Ensure that the term of the agreement as a whole does not get
confused with any other terms that may be provided for (e.g. a
shorter or longer standstill provision or nonsolicitation clause)
• Every NDA should specify the parties’ obligations upon termination
of the NDA
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Term
21. “This Agreement shall remain in full force and effect for a period of
[two] years from the Effective Date (the "Termination Date") and shall
apply in respect of Confidential Information accessed and disclosed
[before], on or after the Effective Date.”
“The obligations of this Agreement shall be continuing until the
Confidential Information disclosed to the Recipient is no longer
confidential.”
Term and Termination
Term (cont’d)
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22. Recipient Use and Confidentiality
Obligations / Purpose
• One of the most important features of the confidentiality
agreement is a specific description of the purposes for which
confidential information may be used
• Typical uses may include: carrying out specified professional
services; exploring the terms of a potential joint venture or
other business opportunity; etc.
• Is the recipient permitted to copy or reproduce the
confidential information? (if not allowed, recipient will argue
this isn't practical)
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23. • Permitted Use: The Recipient may use the Confidential
Information only ...
• … in ordinary course of carrying out its duties in Project [XX].
• … in the operation of the Licensed Software Program for its own
internal purposes.
• … for evaluating the proposed joint venture.
• … for evaluating the possible acquisition of assets.
Recipient Use / Purpose (cont’d)
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24. • Take such precautions to hold the Confidential Information in
the strictest confidence
• Protect and safeguard the confidentiality of all such
Confidential Information with at least the same degree of care
as the Receiving Party would protect its own confidential
information
• Take all reasonable measures available to it, and in any event
not less than those used to protect its own confidential
information, to keep the Confidential Information in the
strictest confidence. [Provided that the Receiving Party has
taken all such reasonable steps, it shall not be responsible if
any of the Confidential Information should be divulged to any
third party whether by reason of honest mistake, dishonest
appropriation or otherwise.]
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Confidentiality Obligations
25. • The discloser does not want to be obligated to disclose any
information by virtue of the fact it has entered into a
confidentiality agreement with the recipient.
• A party may want to include a clause restricting the other
party from disclosing the existence of the NDA or the
prospective arrangement being discussed with that party.
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No Obligation to Disclose
“Notwithstanding anything to the contrary, this Agreement shall not
obligate the Disclosing Party to disclose or otherwise provide access to
any particular Confidential Information or any particular portion
thereof and such disclosure or access, if any, is discretionary.”
26. Putting It All Together
Disclosure and Use Restrictions
• 1.1 The Receiving Party agrees that it shall:
a) [use the Confidential Information solely to the extent required to fulfill the Purpose] [OR]
[use the Confidential Information where such disclosure or use is expressly approved in
advance and in writing by the Disclosing Party in each instance];
b) take all reasonable precautions, [in accordance with industry standards] and in any event
not less than those precautions used to protect his or her own confidential information, and
to keep the Confidential Information in the strictest confidence and to protect it from
disclosure;
c) Not reproduce or copy in any medium in whole or in part any of the Confidential
Information without the written approval of the Disclosing Party in each instance; and
d) not use the Confidential Information in any manner that may be detrimental to the
Disclosing Party nor in the furtherance of the Receiving Party’s own business, profit or
advantage.
• 1.2 The Receiving Party shall promptly notify the Disclosing Party of any unauthorized use,
possession or disclosure of the Confidential Information of which it becomes aware.
• 1.3 Notwithstanding anything to the contrary, this Agreement shall not obligate the Disclosing
Party to disclose or otherwise provide access to any particular Confidential Information or any
particular portion thereof and such disclosure or access, if any, is discretionary.
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27. Required Disclosure/Legal
Compliance
Required disclosure could result from:
• A lawsuit in which the recipient is involved, either as plaintiff or
defendant
• An investigation made by a regulatory body pursuant to:
� Competition Act, Investment Canada Act, Securities Act (Ontario), etc.
Considerations?
• Should the recipient have to provide the discloser with notice in
advance of disclosure (or notice at all) to allow discloser to seek a
protective order?
• Should the discloser be entitled to oppose the disclosure and should
the recipient be obliged to assist the discloser in doing so?
� Will the recipient/discloser share or bear the cost?
• Should the recipient be obliged to obtain the advice of counsel before
disclosing any confidential information?
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28. No Representations and
Warranties/No Agreement
• The discloser does not want the disclosure of Confidential
Information to a recipient to constitute a representation or
warranty by the discloser about facts regarding the discloser
• A confidentiality agreement is not an agreement or
guarantee that a contract or business arrangement will
proceed
• The discloser wants to retain the right to reject a recipient’s
proposal or even terminate the contract/arrangement
discussions, without giving the recipient a right to make a
claim against the discloser
• The recipient should only have a claim against the discloser
if there is a definitive agreement that provides for such
claim, and a definitive agreement should be in writing and
should be more than an executed letter of intent
No Agreement
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29. Liability
• From the discloser’s perspective
� Wants the recipient to be liable for all costs, including legal fees on a
substantial indemnity basis, and indemnification for any breach of the
agreement
� Liability and indemnity extend to all actions of recipient representatives
� Discloser is a trustee of the indemnity and can enforce it on behalf of
the discloser’s representatives
� Acknowledgment that disclosing party may or will suffer irreparable
damage if Confidential Information is disclosed and that monetary
damage would be difficult to establish and can seek equitable relief (in
addition to other remedies) upon breach
• From the recipient’s perspective
� Liability should exclude economic loss and consequential damages
� Legal fees should be limited to reasonable fees
� No indemnity language (especially for third parties). Allow for action for
damages instead
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30. The Receiving Party shall indemnify and hold the Disclosing Party
harmless from and against any and all claims, suits, losses, damages,
costs or expenses, including reasonable attorney fees, incurred or
suffered by the Receiving Party as a result of his or her use or
disclosure of the Confidential Information other than in accordance
with this Agreement, whether such disclosure is done negligently or
otherwise.
Liability and Indemnity for Breach
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Liability (Cont’d)
31. Remedies
• Breach of a confidentiality agreement may cause irreparable
harm
• Difficult to quantify damages for a breach of contract
argument
• Injunctive Relief Clauses
� Not binding on a court
� Injunctions are an equitable remedy granted at the discretion of the court
� The presence of an injunctive relief clause can emphasize to the
recipient the seriousness of any unauthorized disclosure of the
discloser’s confidential information
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32. Injunctive Relief
The Disclosing Party will be entitled to any injunction and/or specific
enforcement of the terms hereof in addition to any other remedy to
which such member may be entitled, at law or in equity, in respect of
any breach or threatened breach of this Agreement.
Remedies (Cont’d)
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33. • Injunctive Relief: The parties acknowledge and agree that a breach of this
Agreement will result in irreparable and continuing harm to the Disclosing Party for
which monetary damages will not fully compensate the Disclosing Party. Therefore,
in the event of a breach or a threatened or intended breach of this Agreement by
the Receiving Party, the Receiving Party hereby consents to the granting of, and the
Disclosing Party shall be entitled, in addition to such monetary relief as may be
recoverable and without deposit of security, posting of any bond or showing or
proving any actual damages being sustained by the Disclosing Party, to equitable
relief (including interim or interlocutory injunctions unilaterally without notice, and
final injunctions with notice), enjoining and restraining such breach, or threatened
or intended breach, enjoining the Disclosing Party to specifically perform the
Agreement and to such other rights and remedies as are available at law or in
equity to the Disclosing Party.
• Remedies: Each Party agrees that any violation or threatened violation of this
Agreement may cause irreparable harm to the Disclosing Party, entitling the
Disclosing Party to seek injunctive relief in addition to all other legal and equitable
remedies.
Remedies (Cont’d)
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35. Non-solicitation
Considerations
• How long should the prohibition last?
• Who should it apply to?
� The recipient alone? The recipient’s representatives and
affiliates?
� All the discloser’s employees? Senior Management only? Only
those individuals the recipient meets during the process?
• Reasonable exceptions / carve-outs of non-solicitation / no-
hire clauses:
� General solicitations (responding to a newspaper or online ad, or
through the activities of a search firm)
� Persons who approach the buyer on their own initiative / unsolicited
inquiries from employees
� Persons formerly employed by the Company
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36. • “For a period of [eighteen (18) months] from the date hereof, each party
agrees that neither it [nor its affiliates] will, directly or indirectly,
employ or solicit to employ any [executive officer, senior manager or
other employee or officer] of the other party with whom such party has
had any contact, or of whom such party has become aware, [in
connection with its consideration of the Business Opportunity]. The
foregoing prohibitions shall not be deemed violated by virtue of general
advertising or solicitations of employment by any party not specifically
directed toward such persons of the other party described in the
foregoing sentence.”
Non-solicitation
Non-solicitation (Cont’d)
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37. Residual Clauses
“Notwithstanding anything to the contrary herein, the receiving party may use
Residuals for any purpose, including without limitation, use in development,
manufacture, promotion, sale and maintenance of its products and services.
"Residuals" means any information retained in the unaided memories of the
receiving party's employees who have had access to the disclosing party’s
confidential information pursuant to the terms of the Agreement.”
“Notwithstanding the confidentiality obligations contained in Section [ ] hereof,
the receiving party may, during and after the term hereof, use in its business
any Residual Information. “Residual Information” means the ideas, knowhow
and techniques that would be retained in the unaided memory of an ordinary
person skilled in the art, not intent on appropriating the proprietary
information of the disclosing party, as a result of such person’s access to, use,
review, evaluation, or testing of the Confidential Information of the disclosing
party for the purposes described herein. An employee's memory is unaided if
the employee has not intentionally memorized the confidential information for
the purpose of retaining and subsequently using or disclosing it. Nothing in this
paragraph, however, shall be deemed to grant to the receiving party a license
under the disclosing party’s intellectual property rights.”
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39. Return/Destruction of Confidential
Information
• NDA should contain a provision which deals with either the return or
destruction of confidential information (and, with destruction, the
recipient should certify its destruction)
• Disclosing party may want it to be automatic. Receiving party will want
the requirement to be triggered only if receive notice as it helps with
compliance and reduces administrative burden.
• Provision should contain for Survivability – NDA should survive even
after return/destruction (especially if a copy of information is allowed to
be retained).
• Receiving party will want to exclude having to destroy any electronic files
that have been archived and cannot be easily deleted.
• Receiving party will want the right to retain one copy for legal or audit
purposes, to be held in a secure location by the legal department.
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40. Return/Destruction of Confidential
Information – Sample Complex Provision
• Return of Confidential Information. The Confidential Information of or
relating to a Discloser remains the exclusive property of the Discloser at all
times. Subject to the following sentence, the Recipient shall deliver all such
Confidential Information, including all Copies, in the Recipient’s (or a
Recipient’s Representative’s) possession or control to the Discloser within
[five] business days after [the date a final determination is made by either
party to discontinue negotiations concerning the Business Purpose]. The
Recipient shall destroy or irretrievably erase, or cause to be destroyed or
irretrievably erased, all documents, memoranda, notes and analyses
(regardless of the form, medium or device on or in which they are written,
recorded, stored or reproduced) derived from such Confidential Information
and which were prepared by the Recipient or by a Recipient’s
Representative, and all Copies, if any, prepared by the Recipient or by a
Recipient’s Representative, which Copies cannot because of the device on
which they are stored be delivered to the Discloser, [such destruction or
erasure to be certified to the Discloser in writing by an officer of the
Recipient within such five business day period.] [Notwithstanding the
foregoing, each party may retain copies of such Confidential Information as
reasonably necessary for business archive or litigation purposes.]
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41. Checklist for Return of Confidential
Information
• Check agreement for obligations. [Validity, dates, destruction, retention,
info in companycreated reports / spreadsheets; etc.]
• Prepare draft email explaining requirements to employees and
explaining what to do.
• Send email to key employees (and IT department if you need their help).
• Determine if other employees and third parties (advisors, board,
investors) received information. Check emails and data room access if
relevant to validate. Send same request.
• Gather data. Obtain employee certificates / acknowledgements
(optional).
• Destroy data as permitted. Secure any retained information.
• Return data, if required.
• Include an officer certificate if required. Discuss with third party if
certificate needs to be modified to be accurate to explain the issue.
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43. Practical tips for InHouse Counsel
• Templates – develop a couple of templates for the most commonly
used NDAs or confidentiality provisions, depending on your business
need. Try to use your templates whenever possible, especially if you
are the disclosing party.
• Checklist – if you often review third party NDAs, consider developing
a checklist rather than merely reviewing language against your
template. It can be used to focus on key issues vs wish list issues,
articulate the rationale for changes, and push some of the work to
law clerks or less lawyers.
• Risk Focus on issues that really matter (and are relevant to your
position as disclosing party vs receiving party). Prefect drafting is
usually a time waste and antagonistic to the other side (and your
business colleagues). Be firm on key issues, especially if you are
confident that your terms are “market” and there is a real risk of non
compliance or the information is vital to your business.
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44. Practical Tips (Cont’d)
• Keep your business colleague informed on material issues
that you are raising (without all of the detail). Why?
� They may have a perspective that could be valuable to the issue.
� They could inadvertently undermine your efforts with the third
party.
� They will look foolish if uninformed.
� They may need to make the final call on the business risk if an issue
cannot be negotiated to your satisfaction.
• Return of Confidential Information:
� Disclosing party – remember to request destruction of confidential
information, especially if it was trade secrets, important pricing
methodology or personal information.
� Receiving party prepare a checklist to assist with complying with
requests for return of confidentiality agreements. (see slide #41).
For major transactions / activity, consider maintain a list of
recipients.
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45. Practical Tips (Cont’d)
• Nonsolicitation clauses – Maintain a list of such clauses so
that the HR group can help manage this.
• Education – Educate your business colleagues about any
unusual provisions and restrictions such as nonsolicitation
clauses so that they don’t inadvertently violate the
agreements.
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46. Conclusions and Key TakeAways
• NDA often starts the business arrangement/
transaction/business discussions and is key to facilitating and
progressing that process.
• There is no onesizefitsall approach and no one boilerplate
template to use for all situations. Each situation is unique
and different arrangements and clients will have different
sensitivities and interests.
• Both internal and external counsel need to inform key
business decisionmakers and their clients to the significance
of NDAs and the implications and liabilities that can arise
from them.
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