Authored by: Aliya Ramji, director of legal and business strategy for Figure 1 Inc. and 2016 recipient of ACC’s Top 10 30-Somethings.
This article was published as part of ACC’s “Ask Aliya” column for lawyers who are the first legal hire at their company and need advice from an in-house lawyer who has been there before.
Our legal department is constantly being inundated with NDAs. It’s great that the sales team is driving business, but between the high level, strategic work that needs to be done and the day-to-day operational work, our department is unable to manage NDAs. What are the most important parts of an NDA that we should always be looking at, and can you suggest any strategies to manage the sheer volume?
Many growing companies have trouble balancing the strategic work of an organization with the day-to-day requirements necessary for a company to function. NDAs are part of the day-to-day requirements that are essential to doing business with potential customers. In order to keep up with the volume of NDAs, I use two strategies.
The first is to draft a template NDA for the business unit. I have drafted both one-way and mutual NDAs for businesses. A template will allow the business to ensure that NDAs don’t have to be reviewed by the internal legal department and that confidentiality obligations are as uniform as possible. Moreover, when template NDAs are reasonable and well-written, they are usually signed as is.
Sometimes a template NDA comes back with comments from the other party. This is when the second strategy becomes useful. In order to better facilitate the review process, develop negotiation parameters for the business units. If the business teams know the parameters of acceptable changes, the NDA process can become self-service to some extent. There will always be clauses that these teams will need help with, but you will reduce the volume on your desk if you take the time to empower them with the ability to resolve some of the issues.
When looking at any agreement, all the clauses are important. I strongly suggest you do not cut corners with your review. Here are some key elements that should be included in any NDA.
1. Identification of the parties
This is usually straightforward. Most NDAs have two parties, but it may become complicated when there are affiliates, agents, partners, or parent and subsidiary companies. In those situations, you will want to identify exactly who should be able to access the information.
2. Defining the confidential information
You will want to determine what constitutes confidential information and its proper form. Some companies require confidential information to be labelled as such. The disclosing party, in a one-way NDA, will want the confidential information to be defined as broadly as possible. Receiving parties may want to limit what is confidential to reduce the burden on themselves.
3. The purpose of the disclosure of the confidential information
This may be defined as broadly or narrowly as required for the companies to do business. It is also important to ensure that the receiving party cannot use the confidential information for its own purposes — to create a competitive product or to use your client list.
4. What is excluded from being confidential
Exclusions are intended to define the situations in which it would be too cumbersome for the receiving party to keep the information confidential.
While lawyers would love for confidential information to remain confidential forever, most information eventually becomes stale or worthless. Most NDAs I have seen have a term of two to five years unless the information disclosed is a trade secret. After five years, the technology or information has changed so much that the confidential information is worthless.
A properly structured, well-written NDA that sufficiently addresses important terms like the above can reduce the need to go back and forth. Moreover, if you are drafting a fair and reasonable NDA, the need to negotiate decreases. I have heard that some companies have tried to set up an automated process to filter NDAs. Some lawyers have said that this has helped filter out the NDAs that need more attention from those that are standard. Keep it simple and fair and empower the business people around you to help reduce the amount of time you spend on NDAs.