I'm sorry, this post is boring.

Perhaps there is just nothing entertaining at all about confidentiality agreements. Or maybe everyone on the Internet is prohibited from telling funny stories about their confidentiality agreements.

We are frequently asked, "Do I need a confidentiality agreement" and "What are the important parts of a confidentiality agreements?" (a/k/a non-disclosure agreements, NDAs, or, even more confusingly CDAs; from here out, I'll use NDA since it's more common).

A a general rule, avoid verbal NDAs. If there is time (and there is ALWAYS time), get a written one. If stuck between a rock and hard place where a written NDA really isn't possible, be aware that verbal NDAs are difficult to prove – the attempt will probably devolve into a 'he said, she said'.  On the other hand, if you aren't going to disclose anything confidential, maybe you don't need an NDA.

There are two types of written confidentiality agreements: mutual agreements and one-way agreements.  Mutual agreements bind both parties. One-way agreements bind just one party.

When are mutual NDAs appropriate?  Whenever both parties are sharing sensitive information or, as is often the case, when only one party is sharing information and the other party is being overly polite. (This is the equivalent of the, "No, you first", "No, YOU first" stand off when opening doors.)  Mutual NDAs are common in joint ventures, partnerships, sale of business negotiations, collaborations, etc.

When are non-mutual NDAs appropriate?  When only one party will be sharing sensitive information.  Think employees, consultants, developers, and subcontractors.

On a separate but related note, you can create a real mess if each party signs the other party's one-way NDA because you'll have two agreements for the same transaction.  Make it simple and sign a mutual NDA.

What terms should always be included? (Seriously, always)

  • Restriction against using confidential information
  • Restriction against disclosing confidential information
  • Obligation to protect trade secrets forever

What terms should you watch out for?

  • Noncompetes
  • Non-solicitation clauses
  • Options or rights of refusal
  • Indemnification
  • License grants
  • Assignment of anything
  • Payment provisions

Of course, weird provisions always seem to turn up in these agreements, so be on the lookout for provisions that require you to turn over your first born (instead of your second born) or that don't seem applicable.  If it doesn't make sense when you read the agreement, there's a good chance it doesn't make any sense to anyone else either.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.