How to Configure the Clauses in the uNDA

Introduction

In a previous blog post, I Have Been Doing NDAs Wrong, I discussed the strategy necessary to create and negotiate a fit-for-purpose NDA.  Since then, I have received numerous questions on how best to configure the uNDA for those purposes.

In this blog post, I take an in-depth analysis into the proper configuration of the clauses of the uNDA to effectuate your particular Information Sharing and Jurisdictional Strategies.  It’s a bit detailed, so you may want to bookmark this post as reference material. If you haven’t read my earlier post, now is a pretty good time to review it before going forward.

Information Strategy-Related Clauses

Let’s address the clauses of the uNDA one-by-one as they relate to Information Sharing Strategy. The Information Strategy has important interactions with four clauses: Business Purpose, Representatives, Term, and Duration.

Business Purpose

The Business Purpose clause restricts the use of the disclosed confidential information to uses within the purpose.  The clause has the added benefit of informing the parties what this agreement is really about. The uNDA has three basic permutations of this clause. It has a generic description of the business purpose, defined as, “a business opportunity of mutual interest and benefit.” The second option allows the parties to specify the business purpose as they see fit.  The third option allows the parties to define the business purpose to exclude certain types of transactions.  The first approach covers a broad spectrum of cases which tends not to serve as a strict limit on the use of the discloser’s confidential information.  However, the use of the generic clause does not require review in each case allowing for faster contracting.  By comparison, a well-defined scope which would limit use of the disclosed confidential information to specific cases is more protective of confidential information.  Reasons why one desire a more defined specification might include if the counter-party is in an adjacent competitive space or working with competitors.  Here, the tradeoff in selecting a particular configuration of this clause is between simplicity, consistency, and standardization versus accounting for the need to tightly constrain the receiving party.  

Confidential Information

The confidentiality clause defines what disclosed information constitutes confidential information.  The uNDA has two permutations for the definition of confidential information. It has a generic description of confidential information which reads as follow:

“Confidential Information” means any information disclosed by either party to the other party, either directly or indirectly, in writing, orally, or by inspection of tangible objects that (a) the Disclosing Party identifies as confidential or proprietary, or (b) that reasonably appears to be confidential or proprietary because of legends or other markings, the circumstances of disclosure, or the nature of the information itself.”

The sweeping language of subsection (a), along the reasonable person standard in subsection, (b) covers a broad expanse of what information will be considered to be confidential.  

The second option for confidential information allows the parties to specify the definition of confidential information.  Here drafters can narrowly tailor the definition of confidential information to items they expect to be disclosed, limiting their potential liability for other information disclosed.

Similar to the Business Purpose, using a generic approach covers a broad spectrum of cases which would tend to draw in more types of disclosed information as confidential and to limit the use of that information.  Further, use of the generic leads to a more templated type of agreement which does not require review of each individual NDA. Reasons why one might need a more defined specification of confidential information is if the drafter knows in advance what information will be shared and does not want to be bound to confidentiality obligations for receiving information outside of that scope.  Note that the generic description of confidential information includes, and if is included in the drafting of a specific description, a “reasonable person standard”, the clause might be construed to include information which is not specified by the clause.

Representative Clauses

The representative clause serves to limit to whom confidential information may be disclosed.  The uNDA has two permutations for the definition of representatives. It has a generic description of representatives and a second option which allows the parties to specify the definition of representatives. The generic reads as: “which includes only its employees, agents, officers, and advisors.”  And, like the Business Purpose and the Confidential Information, the primary tradeoff is between standardization and tailoring for a specific business or legal need. Determining what the best optimization will be is dictated in large part to the nature of the confidential information expected to be shared.

Depending on what the Business Purpose is, the drafter may wish to further limit the Representatives to whom Confidential Information may be permissibly transmitted.  If, say, the Business Purpose limits usage due to the need of maintaining highly sensitive material, then the Representatives Specifically Defined Clause may be indicated.

Term Clause

The term clause specifies how long the agreement is to last.  It can be set to any period of time.  At the expiry of the agreement, any further information conveyed will not be treated as confidential information.  In addition, information previously conveyed may no longer be protected by the non-use and disclosure provisions, subject to the Duration Clause.  

Duration of Confidential Information Clause

The Duration of Confidential Information Clause can be included or excluded from any individual NDA.  If present, the Clause provides the obligation to maintain the confidentiality of confidential information will persist after the term of the agreement so long as the disclosed information remains confidential.  The Term may be lengthened and the Duration clause added to ensure maximum protection of Confidential Information.  If, on the other hand, the drafter expects to receive sensitive Confidential Information from the counter-party and wants to limit any potential legal exposure from breach, a shorter Term and the absence of Duration might be indicated.

Implementations of Information Sharing Strategies by Clause

Just a quick refresher from our previous blog post, the Information Sharing Strategy is dictated by whether you are a net discloser of sensitive Confidential Information.  We have dubbed the two sub-strategies in information sharing eloquently as Strategy A and Strategy B.  Strategy A indicates the most protective NDA for the drafting party and is used when the drafter is disclosing highly sensitive Information.  Strategy B indicates drafting for the least possible restrictive NDA and is used when the drafter is receiving highly sensitive information from the counter-party and want to guard against breach exposure.

The most preferred implementation of the clauses of the uNDA to effectuate the Sub-strategies A and B would be:

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Strategy A

Business Purpose: Generic  

Confidential Information: Generic  

Representatives: Specific  

Term: Long  

Duration of Confidential Information: Included

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Strategy B

Business Purpose: Specific  

Confidential Information: Specific  

Representatives: Generic  

Term: Short  

Duration of Confidential Information: Excluded

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Jurisdictional Strategy

Now let’s return to the Jurisdictional Strategy which is separate from the Informational Strategy.  There are two clauses related to Jurisdictional Strategies: Governing Law and Venue.  While related to each other, they are independent determinations.

‍Governing Law

The Choice of Law clause, also referred to as the Governing Law clause, specifies and jurisdiction whose laws will govern the interpretation, enforcement, and resolution of any disputes related to the NDA. This provision helps provide clarity and consistency in the event of conflicts or legal action related to the agreement.  The primary consideration in choice of law is the selection of a jurisdiction with well-established legal systems and well-defined contract law.  In addition, maintaining consistency in the choice of law across agreements can simplify legal operations.  Finally, the selected jurisdiction's laws must align with your agreement's objectives and that the chosen venue is enforceable in case of disputes.  The dominant strategy is to pick the jurisdiction in which the drafter resides.  However, if the counterparty is in another jurisdiction, then there may be some contention over which jurisdiction to choose.  It is important to select a governing law which does not afford an advantage to the other side.  This quickly becomes a complex analysis the merits of which may not be justified for a routine agreement.  Therefore, the best approach may be to create a stack-ranked list of acceptable jurisdictions.

Venue

Venue specifies where any dispute related to the agreement will be litigated.  In the default permutation of the uNDA, the Venue clause names a specific venue for legal proceedings related to the NDA, requiring that any disputes must be litigated in the state or federal courts of the specified jurisdiction. In addition to naming a specific venue, uNDA allows the drafter to specify that the plaintiff commencing any action must bring suit in the jurisdiction where the defendant is.  Obviously, specifying a location gives certainty to where any lawsuit will be brough.  A typical consideration will include the locations where the parties operate or where the disclosed information might be relevant and a jurisdiction that is practical for both parties by virtue of the location of their businesses and their attorneys.  Moreover, the drafter should ensure that the chosen venue is in a jurisdiction which has well-established legal systems capable of handling the complaint, is a rule-of-law jurisdiction, and the selection of such venue is enforceable in case of disputes.  Further, choosing the option where the defendant resides makes it harder to sue and easier for the sued party, acting as a natural disincentive to litigation.  However, this option is to be avoided when the drafter expects that the counterparty will be in a foreign or low rule-of-law jurisdiction.  Thus, the selection of venue may also be a stack ranked list of domiciles, where the defendant resides, and other equally inconvenient fora to which at least one party has nexus.

Conclusion

There are a lot of moving pieces to the uNDA, which can lead to a good deal more complexity.  However, these moving pieces can afford the flexibility to achieve the non-disclosure agreement you need for a particular purpose.

Disclaimer: Ozeki is not a law firm, and this blog post does not constitute or contain legal advice. Use of, and access to, this blog material does not create an attorney-client relationship with Ozeki.  In other words, if this were legal advice, a bill would follow.

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