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A Guide to IT Contracting by Michael R. Overly, Matthew A. Karlyn

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27
3
Nondisclosure Agreements
CHECKLIST
Form and Type of Agreement
Companys form or vendor’s form
Unilateral (one-way) NDA
Mutual (two-way) NDA
Denitions
Precise purpose for NDA
Denition of “condential information
General Requirements
Marking requirements
Obligation to return and/or destroy
Obligations of condentiality
S Reasonable care
S Consistent with internal practices
Internal disclosure of information
S Employees
S Agents
S Subcontractors
S Others
Exceptions to condentiality
S No fault or wrongdoing of receiving party
S Received from third party
S Independently developed
S Other exceptions
28  •  A Guide to IT Contracting: Checklists, Tools, and Techniques
Procedure for disclosure for subpoena/court order
Opportunity to obtain injunctive relief
Notication of potential or actual breach
No obligation to disclose
No ownership transfer
No removal of proprietary notices
Protection of intellectual property (IP)
Term
S Intellectual Property (IP)
S Personally Identiable Information (PII)
S Other protection beyond term
Information handling requirements
Encryption/other protection for highly sensitive information
Residual knowledge
Techniques
Avoid use of NDA as nal/ongoing agreement
Avoid commencement of services before denitive agreement
Receipt of competitor’s information
OVERVIEW
Nondisclosure agreements (sometimes called condentiality agreements)
(NDAs) are used in several situations and transaction types to pro-
tect information exchanged by the parties to a transaction. Most nota-
bly, NDAs are used at the inception of a proposed business relationship
to ensure that condential information disclosed by the parties prior to
executing a denitive agreement is protected from unauthorized disclo-
sure. If the parties decide to enter into a denitive agreement (for example,
a professional services or soware licensing agreement) following their
initial discussions, the NDA would commonly be replaced by the con-
dentiality provisions of the nal denitive agreement. In the foregoing
example, an NDA is used as an interim agreement to ensure initial discus-
sions, and information exchanged by the parties during such discussions,
are protected by written condentiality obligations.
NDAs are not usually intended to be used on an ongoing basis to cover a
broader relationship between the parties. NDAs may be used on an ongo-
ing basis for employees, contractors, and others, who may not require
Nondisclosure Agreements • 29
anything more substantial in the way of contractual documentation to
govern their relationship with the business, but this is generally not the
case. is chapter does not address the unique issues inherent in employ-
ment relationships.
While NDAs can come in all shapes and sizes, they are typically either
unilateral or mutual. Unilateral NDAs (sometimes referred to as one-way
NDAs) protect only the information of one of the parties. is type of
NDA is used when information will ow in only one direction or when
only one of the parties is concerned about protecting its information.
Mutual NDAs (sometimes referred to as two-way NDAs) protect the infor-
mation of both of the parties. Mutual NDAs are used when information
will ow in both directions and when both parties are concerned with
protecting their information.
In addition to protecting the parties’ condential information, NDAs
are a key means of protecting and maintaining the enforceability of trade
secret rights. Disclosure of condential information without an NDA or
similar condentiality obligations can result in irrevocable loss of trade
secret protection.
KEY CONSIDERATIONS
Included below is a summary of the various topics and issues that should
be addressed in any NDA. ere are several initial considerations in any
potential use of an NDA:
• As an initial issue, your company must decide whether to use its
form NDA or that of the other party. In many instances, this is not
a signicant issue. Most NDAs generally cover the same issues and
topics, and the dierences between your company’s NDA and the
other party’s NDA are frequently trivial or easily resolved through
simple revisions. In all cases in which your company will be dis-
closing highly condential information or intellectual property, or if
unique regulatory issues are involved, the preference is to use your
company’s form agreement. In such cases, your company’s NDA
will likely (and should) contain specic terms to address issues that
are critical to your company and are likely not included in the other
party’s form agreement. If you must use the other party’s NDA and

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