NDA Terms - what are the odd-ball terms to watch out for?

July 28, 2021

by a searcher from Northwestern University - Kellogg School of Management in Chicago, IL, USA

Anyone have examples of objectionable NDA terms they have seen pop up? For instance I have heard of 'non-competition' clauses being thrown in that limit your ability to compete or pursue other deals in the industry.

It's time consuming to read every single NDA in detail, so if I know what I'm looking for it could help!

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Reply by a professional
from Boston University in Boston, MA, USA

The items to focus on depend on whether you're primarily receiving or sharing the information. If you are the recipient, you want to make sure you retain the right to disclose confidential information in response to any court order/regulatory request. You also want to make sure that any protective orders arising from those types of requests are at the sole cost and expense of the recipient. Additionally, you should ensure that any damages for which the disclosing party may recover are limited to direct damages only (meaning that the recipient isn't liable for, by way of example, lost profits/loss of future business as a result of any unauthorized disclosure). Finally (and this one may be obvious), a recipient should make sure that it has the right to disclose the confidential information to legal and financial advisors. You should certainly engage a lawyer to look through the NDA in any event and identify what terms might not be considered "market," since every agreement is drafted differently and may contain nuances that are atypical for agreements of this nature generally.

Reply by a professional
from George Washington University in Raleigh, NC, USA

I could probably write a book on NDAs, so I'll try to hit the highlights. First, think about the purpose of the NDA and make sure you really need a mutual NDA versus one-way. If you are investing, then a mutual NDA generally is the default. Second, pay attention to the distinguishable terms, such as "Purpose." That may need to be defined broad or narrow, depending on a number of issues. Third, note that trade secrets should be an included term or focus (e.g., client lists, processes, inventions, R&D, etc.). Finally, the rest should be form - e.g., you should not see non-competition clauses or anything else (restrictive covenants, non-solicitation clauses) that, for one, are likely invalid, and second, don't belong in an NDA that you would want to sign. Happy to discuss specifics and/or to make your own form.

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