Non-Disclosure Agreements are NOT a One Size Fits All Agreement

Introduction

Non-Disclosure Agreements are not a one-size-fits all contract. Many firms provide clients with a

“standard” NDA, but this might not be in the client’s best interest. An NDA can cover a wide range of discussions/interactions and it is important that your company tailor the NDA to best suit

your needs. A sales discussion with a potential customer might be treated completely different from a discussion with a potential IP partner. In the first, your company might not be providing highly sensitive information and the NDA would be tailored around protecting the confidentiality

of future product features. In the second, your company might be concerned about receiving certain information from the potential partner that might taint your future development efforts. If

the potential partner shares ideas or information pertaining to your own product, your company may be barred from using those ideas in the future. When our clients want to enter into an NDA, we ask a few standard questions in order to best evaluate the client’s needs and the appropriate

clauses to include. The attached NDA document demonstrates some of the trade-offs and issues that a client should consider when entering into an NDA. Obviously, we encourage you to seek

the assistance of counsel when entering any legal agreement. Please don’t hesitate to contact me if you have any questions (Cameron Sellers: cameron@ascendalaw.com).

Guidance for Template

Below is a form of mutual confidentiality agreement (also known as a “nondisclosure agreement”

or “NDA”), which is drafted so that each party may disclose confidential information to the other in connection with a possible commercial transaction. A unilateral confidentiality agreement should be used in situations where only one of the parties needs to disclose confidential

information. The provisions in a mutual confidentiality agreement bind and benefit both parties in the same manner, enabling each party to gain access to the other's confidential information under

one contract. Confidentiality agreements generally have two purposes:

Preserve the confidentiality of sensitive information disclosed by one party to the other.

Restrict the receiving party's use of the other party's confidential information except for limited purposes that are expressly permitted under the agreement.

The parties may add additional provisions, either to address industry- or deal-specific concerns or

to include other terms that are indirectly related to confidentiality (for example, a non-solicitation provision, although, please note, in California (and some other states) there are some special circumstances relating to non-disclosure agreements and non-compete clauses.

When preparing or reviewing a mutual confidentiality agreement, consider whether you will primarily disclose or receive information, and the relative value and sensitivity of the information

to be exchanged, and adjust the operative provisions accordingly. For example, if your company is the customer in an outsourcing transaction, the definition of confidential information should be as

broad as possible and the receiving party's nondisclosure obligations should be strict. Conversely, if you are representing the service provider, you might want less restrictive obligations and a narrower definition of confidential information, possibly even a restriction on the types of

information that will be disclosed, to minimize liability.

NOTE: The template below has a number of bracketed clauses that may or may not be relevant or appropriate for your particular agreement. In most cases we have provided endnotes to explain the

purpose of the bracketed language or clauses. If you contact me, I can send you a copy of the template in Word format so you can properly use the endnotes and also modify according to your needs (Cameron Sellers: cameron@ascendalaw.com).

MUTUAL NON-DISCLOSURE AGREEMENT

THIS AGREEMENT is made and entered into as of the date last signed below (the “Effective Date”), by and between [insert full corporate name of Party A], a [insert Party A State of

Incorporation] [insert entity type of Party A] having its principal place of business at [insert Party A address] (“Party A”) and [insert full corporate name of Party B], a [insert Party B state of incorporation] [insert entity type of Party B] having its principal place of business at [insert Party

B address] (“Party B”) (each, a “Party” and together, the “Parties”).*1

WHEREAS, in connection with [insert the purpose of the NDA][evaluating a potential business relationship] (the “Purpose”)* 2 , each Party (the “Disclosing Party”) desires to share certain confidential information (defined below) that is non-public, confidential or proprietary in nature

with the other Party (the “Receiving Party”) [before,] on or after the Effective Date. [Confidential Information also includes all notes, analyses, summaries and all other materials prepared by or for

the Receiving Party that contain, are based on, or otherwise reflect or are derived from, in whole or in part, the Confidential Information (the “Notes”).]

NOW, THEREFORE, in consideration of the mutual covenants, terms and conditions set forth herein, the Parties agree as follows:

1. Confidential Information* 3 . “Confidential Information” of a Disclosing Party shall include, without limitation, (a) products, plans, planning information, marketing or promotion

plans or strategies, financial information, pricing, operations, vendor relationships, customers or customer relationships, customer profiles, transaction data, sales estimates, business plans or

practices, trade secrets and internal performance results relating to past, present or future business activities of the Disclosing Party, its affiliates or any of its customers or vendors ; (b) any scientific or technical information, design, process, procedure, formula, methodology or improvement that is

commercially valuable; (c) all documentation, reports, data, specifications, computer hardware or software, computer programs, source code, object code, flow charts, mappings, interfaces,

databases, inventions, engineering and laboratory notebooks, drawings, diagrams, schema,

prototypes and models, and any other tangible manifestation (including data in computer or other digital format) of any of the foregoing, whether or not patentable or copyrightable; and (d) all

proprietary secret or confidential information relating to either Party and their operations, employees, products or services[, whether disclosed orally or disclosed or accessed in written,

electronic or other form or media, and whether or not marked, designated or otherwise identified as “confidential.”].*4 [Confidential Information shall be subject to the restrictions of this Agreement only if [clearly marked as proprietary when disclosed to the Receiving Party or, if not in tangible

form, only if summarized in tangible form conspicuously marked “Confidential,” “Proprietary” or the like and delivered to the Receiving Party within thirty (30) days of the original disclosure]*5[,

or provided that ][a reasonable person would understand such information to be confidential or proprietary given the nature of the information or the circumstances of disclosure]*6.

2. Obligations of the Receiving Party.* 7 The Receiving Party agrees to (a) hold the Confidential Information in confidence using the same degree of care as it normally exercises to

protect its own proprietary information of a similar nature, but in no event less than a reasonable standard of care*8; (b) not disclose the Confidential Information to any third party without the prior written approval of the Disclosing Party*9; (c) not use the Confidential Information, or permit

it to be accessed or used, for any reason other than the Purpose*10; (d) reproduce the Confidential Information only to the extent necessary for the Purpose; and (e) not copy, reverse engineer,

disassemble, decompile or design around the Confidential Information.*11 [Each Party agrees that it will not purchase or sell any stock of the other Party based on Confidential Information.] [Except as required by applicable federal, state or local law or regulation, neither Party shall

disclose to any person (f) that the Confidential Information has been made available to it, or that it has inspected any portion of the Confidential Information; (g) that discussions or negotiations may

be, or are, underway between the Parties regarding the Confidential Informatio n or the Purpose, including the status thereof; or (h) any terms, conditions or other arrangements that are being discussed or negotiated in relation to the Confidential Information or the Purpose.]*12 [In addition

to the foregoing obligations, the Receiving Party acknowledges that all personal data, including all personally identifiable information, is protected under certain privacy laws and agrees to comply

with all legal and regulatory requirements relating to the privacy and confidentiality of such personal data.]

3. Permitted Disclosures. The Receiving Party may disclose the Confidential Information to its employees, officers and directors with a need to know[ and who are identified to and approved in

writing by the Disclosing Party in advance]* 13 ; provided, the Receiving Party binds those employees, officers and directors to terms at least as restrictive as those stated herein* 14 and advises those employees, officers and directors of their obligations with respect to the Confidential

Information*15. The Receiving Party agrees to be liable for any breach of this Agreement by its employees, consultants and contractors*16. *17 [Upon request, the Receiving Party shall provide a

list of individuals to whom the Confidential Information has been disclosed.] 4. Exceptions to Obligations. The restrictions on the use or disclosure of Confidential

Information shall not apply to any Confidential Information that *18 (a) is or becomes generally available or known to the public [other than as a result of[, directly or indirectly,] any violation of

this Agreement by the Receiving Party]; or (b) was in the Receiving Party’s possession or known by it without restriction[, as established by documentary evidence,] prior to receipt from the

Disclosing Party; or (c) at the time of disclosure is, or thereafter becomes, available to the Receiving Party on a non-confidential basis from a third-party source[, provided that, to the

Receiving Party’s knowledge, such third party is not and was not prohibited from disclosing such Confidential Information to the Receiving Party[ by a[ legal, fiduciary or] contractual obligation to

the Disclosing Party]]; or (d) the Disclosing Party agrees in writing is free of such restrictions; or (e) was or is independently developed by the Receiving Party[, as established by documentary evidence,][ without reference to or use of, in whole or in part, any of the Confidential Information].

5. Mandatory Disclosure. Prior to making any disclosure that is required by applicable federal,

state or local law, regulation or a valid order issued by a court or governmental agenc y of competent jurisdiction (a “Legal Order”), the Receiving Party shall* 19 [use commercially reasonable efforts to] provide the Disclosing Party with (a) prompt written notice* 20 of such

requirement so that the Disclosing Party may seek, at its sole cost and expense*21, a protective order or other remedy; and (b) reasonable assistance, at the Disclosing Party's sole cost and

expense, in opposing such disclosure or seeking a protective order or other limitations on disclosure. If, after providing such notice and assistance as required herein, the Receiving Party remains subject to a Legal Order to disclose any Confidential Information, the Receiving Party

shall disclose no more than that portion of the Confidential Information which, on the advice of the Receiving Party's legal counsel*22, such Legal Order specifically requires the Receiving Party to

disclose [and, upon the Disclosing Party's request, shall use commercially reasonable efforts to obtain assurances from the applicable court or agency that such Confidential Information will be afforded confidential treatment]*23. Any Confidential Information disclosed pursuant to a Legal

Order shall otherwise remain confidential and subject to the protections and obligations of this Agreement.

6. [The Disclosing Party understands that the Receiving Party may currently, or in the future, be developing information internally, or receiving information from other parties that may be similar

to the Disclosing Party’s Confidential Information. Accordingly, this Agreement shall not be construed to limit the Receiving Party’s right to, without violation of this Agreement, develop

products, or have products developed for it, that compete with products or systems contemplated by the Disclosing Party’s Confidential Information.]*24

7. [Residuals. Notwithstanding any other provision of this Agreement, either Party shall be free to [disclose, publish, disseminate and] use for any purpose (including, but not limited to, use in the

development, manufacture, marketing and maintenance of its own products and services) the Residuals resulting from access to or work with the other Party’s Confidential Information, provided that the Party maintains the confidentiality of the Confidential Information as provided

herein. The term “Residuals” shall mean information in non-tangible form that is [obtained without the intent to memorize by and] retained in the [unaided] memory by persons who have had

rightful access to the Confidential Information, including, without limitation, the ideas, concepts, know-how or techniques contained therein. The Receiving Party shall not have any obligation to limit or restrict the work assignments of any of its employees, consultants and contractors who are

provided access to the Confidential Information, or to pay the Disclosing Party any royalties for any work product developed in reliance on or through the use of, in whole or in part, any Residuals,

provided, however, that this Section [7] shall not be deemed to grant to the Receiving Party any right, title or interest (including, without limitation, any intellectual property rights) in or to any

Confidential Information. [Notwithstanding the provisions of this paragraph, during the term of this Agreement, neither Party may avoid its obligations toward a particular item of the Confidential

Information merely by having a person commit such item to memory so as to reduce it to a non-tangible form.]]*25

8. [Feedback. The Receiving Party may from time to time provide suggestions, comments or other feedback with respect to Confidential Information provided originally by the Disclosing

Party (“Feedback”). Both Parties agree that all Feedback is and shall be given entirely voluntarily. Feedback, even if designated as confidential by the Party offering the Feedback, shall not create

any confidentiality obligations on the receiver of the Feedback unless the Parties sign a separate written agreement. The Receiving Party will not give Feedback that is subject to terms that seek to require a license to (a) any product, technology, service or documentation incorporating or derived

from such Feedback; or (b) any intellectual property of the Party receiving Feedback. Furthermore, unless otherwise provided in a separate subsequent agreement between the Parties, the receiver of

Feedback shall be free to use, disclose, reproduce, license or otherwise distribute and exploit the Feedback provided as it sees fit, entirely without obligation or restriction of any kind on account of intellectual property rights or otherwise.]*26

9. No Transfer of Rights. All Confidential Information shall remain the property of the

Disclosing Party and each Party hereby retains its entire right, title and interest, including all intellectual property rights, in and to all of its Confidential Information. Except for the right to use and reproduce the Confidential Information for the Purpose, the Disclosing Party does not grant

any license, express or implied, under any trademark, patent, copyright, trade secret, or other proprietary rights of the Disclosing Party and the Disclosing Party reserves any rights not

expressly granted to the Receiving Party hereunder.*27 10. Term, Termination and Survival of Obligations. The term of this Agreement shall

commence on the Effective Date and shall expire [insert number] year[s] from the Effective Date, provided that either Party may terminate this Agreement at any time by providing written notice to

the other Party* 28 . Notwithstanding anything to the contrary herein, each Party's rights and obligations under this Agreement shall survive any expiration or termination of this Agreement [in perpetuity][for a period of [insert number] year[s] from the date of such expiration or termination,

except for personal information or trade secrets, which shall remain confidential for as long as such information is protected under law or regulation], even after the return or destruction of

Confidential Information by the Receiving Party*29. 11. Return or Destruction of Confidential Information. At any time upon the Disclosing

Party's written request, [or automatically upon termination of this Agreement,]*30 the Receiving Party shall promptly*31 collect and surrender to the Disclosing Party, or confirm the destruction or

non-recoverable erasure of,* 32 (a) all originals, copies, reproductions and summaries of the Confidential Information; (b) all other tangible documents or materials (and all copies of same, including “copies” that have been converted to computerized media in the form of image, data or

word processing files either manually or by image capture) based on or including any Confidential Information[; and (c) any Notes created by the Receiving Party,] and such return or destruction

shall be certified in writing to the Disclosing Party by an authorized officer of the Receiving Party

supervising such return or destruction.[ The Receiving Party may, however, retain one copy of all written materials returned to provide an archive record of the disclosure.]*33

12. No Future Obligations. The Parties agree that neither Party shall be under any obligation of

any kind whatsoever to enter into any future business or contractual relationship with the other Party or to purchase products or services from the other Party.*34

13. NO REPRESENTATIONS OR WARRANTIES. NONE OF THE CONFIDENTIAL INFORMATION WHICH MAY BE DISCLOSED OR EXCHANGED BY THE PARTIES

SHALL CONSTITUTE ANY REPRESENTATION, WARRANTY, ASSURANCE, GUARANTEE OR INDUCEMENT BY EITHER PARTY TO THE OTHER PARTY OF ANY KIND, AND, IN PARTICULAR, WITH RESPECT TO THE NON-INFRINGEMENT OF

TRADEMARKS, PATENTS, COPYRIGHTS, MASK WORK PROTECTION RIGHTS OR ANY OTHER INTELLECTUAL PROPERTY RIGHTS, OR OTHER RIGHTS OF ANY KIND.

CONFIDENTIAL INFORMATION IS PROVIDED SOLELY ON AN “AS IS” BASIS, AND THE DISCLOSING PARTY DOES NOT MAKE ANY REPRESENTATION OR WARRANTY, EXPRESSED OR IMPLIED, AS TO THE ACCURACY OR COMPLETENESS OF THE

CONFIDENTIAL INFORMATION DISCLOSED TO THE RECEIVING PARTY HEREUNDER. THE DISCLOSING PARTY SHALL NOT BE LIABLE TO THE RECEIVING PARTY

RELATING TO OR RESULTING FROM THE RECEIVING PARTY’S USE OF ANY OF THE CONFIDENTIAL INFORMATION OR ANY ERRORS THEREIN OR OMISSIONS THEREFROM.*35

14. [Roadmap Disclaimer. To the extent the Confidential Information disclosed hereunder

relates to plans regarding products, services or features not then commercially released, the Receiving Party acknowledges and agrees that it may not rely on the future availability of any such product, service or feature in making decisions to purchase or otherwise engage in transactions.]*36

15. Export Compliance. The Parties acknowledge that any materials and any technical

information provided under this Agreement are subject to the export regulations of the United States, and any use of such materials and technical information must be authorized under those regulations. The Receiving Party agrees that it shall not use or transmit the materials or technical

information except in compliance with the export regulations of the United States. If requested by the Disclosing Party, the Receiving Party shall sign written assurances and other export-related

documents as may be required under the U.S. export regulations. The Receiving Party agrees to indemnify and hold the Disclosing Party harmless from and against all claim, loss, liability or damage suffered or incurred by the Disclosing Party resulting from or related to the Receiving

Party’s failure to comply with all export or import regulations.*37

16. [Remedies. The Receiving Party acknowledges and agrees that due to the unique nature of the Disclosing Party’s Confidential Information, there can be no adequate remedy at law for any breach of its obligations hereunder, which breach will result in irreparable harm to the Disclosing

Party, and therefore, that upon any such breach or any threat thereof, the Disclosing Party is entitled to temporary, preliminary and permanent injunctive relief against the Receiving Party, its

officers or employees, without the requirement of posting a bond or proving actual damages, in addition to whatever remedies it might have at law. [The prevailing Party shall be entitled to the

award of its costs and expenses, including reasonable attorney’s fees, in any action to enforce this Agreement.]]*38

17. Governing Law, Jurisdiction and Venue . This Agreement shall be governed by and

construed in accordance with the internal laws of the State of [insert state] without giving effect to any choice or conflict of law provision or rule (whether of the State of [insert state] or any other jurisdiction) that would cause the application of laws of any jurisdiction other than those of the

State of [insert state]. Any legal claim, suit, action or proceeding arising out of this Agreement or the matters contemplated hereunder or the breach thereof, whether sounding in contract, tort or

otherwise, shall likewise be governed by the internal laws of the State of [insert state] without giving effect to any choice or conflict of law provision or rule and shall be instituted exclusively in the federal courts of the United States or the courts of the State of [insert state] in each case

located in the city of [insert city] and County of [insert county], and each party irrevocably submits to the exclusive jurisdiction of such courts in any such suit, action or proceeding and

waives any objection based on improper venue or forum non conveniens. Service of process, summons, notice or other document by mail to such Party's address set forth herein shall be effective service of process for any suit, action or other proceeding brought in any such court.*39

18. Assignment; No Third Party Beneficiaries . Neither Party may assign any of its rights or

delegate any of its obligations hereunder without the prior written consent of the other Party. Any purported assignment or delegation in violation of this Section shall be null and void. No assignment or delegation shall relieve the assigning or delegating Party of any of its obligations

hereunder. This Agreement is for the sole benefit of the Parties hereto and their respective successors and permitted assigns and nothing herein, express or implied, is intended to or shall

confer upon any other person or entity any legal or equitable right, benefit or remedy of any nature whatsoever under or by reason of this Agreement.*40

19. Miscellaneous. All notices, requests, consents, claims, demands, waivers and other communications hereunder shall be in writing and shall be deemed to have been given: (a) when

delivered by hand (with written confirmation of receipt); (b) when received by the addressee if sent by a nationally recognized overnight courier (receipt requested); (c) on the date sent by facsimile [or e-mail of a PDF document] (with confirmation of transmission) if sent during normal business

hours of the Receiving Party, and on the next business day if sent after normal business hours of the Receiving Party; or (d) on the [third] day after the date mailed, by certified or registered mail,

return receipt requested, postage prepaid. Such communications must be sent to the respective Parties at the addresses set forth on the first page of this Agreement (or to such other address that may be designated by a Party from time to time in accordance with this Section). This Agreement

constitutes the sole and entire agreement of the Parties with respect to the subject matter contained herein, and supersedes all prior and contemporaneous understandings, agreements, representations

and warranties, both written and oral, with respect to such subject matter. This Agreement may only be amended, modified or supplemented by an agreement in writing signed by each Party hereto. In the event that any of the provisions of this Agreement shall be held by a court or other

tribunal of competent jurisdiction to be illegal, invalid or unenforceable, such provisions shall be limited or eliminated to the minimum extent necessary so that this Agreement shall otherwise

remain in full force and effect and such invalidity, illegality or unenforceability shall not invalidate or render unenforceable such term or provision in any other jurisdiction. This Agreement may be

executed in counterparts, each of which shall be deemed an original, but all of which together shall be deemed to be one and the same agreement. A signed copy of this Agreement delivered by

facsimile[, e-mail or other means of electronic transmission] shall be deemed to have the same legal effect as delivery of an original signed copy of this Agreement. No waiver by any Party of

any of the provisions hereof shall be effective unless explicitly set forth in writing and signed by the Party so waiving. No waiver by any Party shall operate or be construed as a waiver in respect of any failure, breach or default not expressly identified by such written waiver, whether of a

similar or different character, and whether occurring before or after that waiver. No failure to exercise, or delay in exercising, any right, remedy, power or privilege arising from this Agreement

shall operate or be construed as a waiver thereof; nor shall any single or partial e xercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege.

IN WITNESS WHEREOF, the Parties have caused their respective duly authorized representatives to execute this Agreement on the respective dates entered below.

[PARTY A]: [PARTY B]:

By: By: Name: Name:

Title: Title:

Date: Date:

1 The parties should include their full name, business address and applicable state of incorporation or organization, so that they can properly provide any required notices in

accordance with applicable state law. Although only the parties themselves are bound by the agreement, consider whether the parties’ affiliates (parent, subsidiaries and sibling

entities) will be providing any of the confidential information to be shared under the agreement. BACK 2 Many confidentiality agreements limit the disclosure and use of confidential

information to a specified business purpose. The purpose frames the parties’ engagement and defines the scope of acceptable use of the confidential information that they

exchange. The purpose may refer directly to the proposed engagement under consideration by the parties (complete the first bracketed option). Alternatively, the parties may include general purpose language that broadly covers preliminary discussions

or negotiations undertaken in anticipation of executing a definitive agreement (use the second bracketed option). However, if the parties have an ongoing business relationship,

or intend for their obligations under the confidentiality agreement to remain in effect after a principal agreement has been executed, the purpose should be expanded by adding the following: “or discussions of present or future matters under existing or future business

arrangements.” BACK

3 The definition of “Confidential Information” is an essentia l component of

confidentiality agreements. In general, a disclosing party will want to protect its confidential information with as broad a definition as possible (see note 4), while a

receiving party will prefer a narrower definition to minimize its burden under the agreement, and may want to further limit its obligations by requiring the disclosing party to mark confidential information (see note 5). However, an overly broad definition might

be unenforceable, while a narrowly tailored provision may compromise a receiving party’s ability to protect its own confidential information that it discloses. Because

mutual confidentiality agreements typically have a single definition that applies to both parties, and assuming that each party intends to both disclose and receive confidential information under the agreement, it is in both parties’ best interest to tailor the definition

to reflect: The nature of the contemplated engagement.

The type and extent of information to be shared. Each party’s willingness to assume administrative and operational obligations in

connection with the information it discloses and receives.

The parties should sign a confidentiality agreement as early as possible in their

relationship or at the outset of substantive negotiations in a larger transaction, preferably before any confidential information is disclosed. In practice, however, parties often disclose information before signing the confidentiality agreement. Therefore, the parties

should specifically cover prior disclosures. However, if the parties are confident that no confidential information was disclosed before the effective date of the agreement, or if

the parties agree that the agreement will not apply to any previous disclosures, the

optional word “before” can be removed. The definition of confidential information may also include materials that are created by or for the receiving party using the disclosing

party’s confidential information as stated in the optional last sentence. For example, if the receiving party creates a financial report using the disclosing party’s raw accounting data, that report should be treated as the disclosing party’s confidential information under the

agreement (even though it may also include the receiving party’s own confidential information). BACK

4 In addition to a general description of confidential information (such as “all non-public,

confidential or proprietary information”), the parties may want to list specific types and categories of information to be covered (preceded by the words “including, without

limitation” to indicate that the list is not exhaustive). Optionally, the parties may want to include the clarification that this information may be disclosed in any form and that marking information as confidential is not required. BACK

5 While a receiving party may act with the best of intentions to comply with its

obligations, it can be difficult to track and maintain every item of information (and every

copy made internally) that a party receives under every confidentiality agreement it enters into. Therefore, a party that anticipates being more often the receiving party in the arrangement may seek to draft in some limitations on the forms of information that will

be considered confidential and subject to the terms of the agreement. For example, a party may restrict the definition, depending on the degree to which one side or the other

is primarily the receiving party, to include only information that is:

Disclosed in writing.

Conspicuously marked as “confidential.” If disclosed orally, then confirmed to be confidential in writing by the disclosing

party within a fixed period of time from the date of initial disclosure (typically between ten and 30 days).

To the extent that a party expects to be more often a discloser of information under the agreement, it will likely object to any procedural requirements, such as marking, if it does

not believe that it will be able to consistently comply with them or does not label confidential documents as part of its normal practice. From this party’s perspective, avoiding the effort in reducing each item of information to writing and marking as

confidential minimizes the risk of human error in so doing and reduces the possibility of its confidential information not being protected otherwise. A convincing response to this

objection is that the disclosing party is not taking adequate steps to protect its confidential information if it does not label confidential documents as part of its normal practice. BACK

6 A compromise is a reasonable person standard, which still puts responsibility on the

receiving party to determine what is reasonably confidential. The reasonable person standard can be used on its own or combined with the marking requirement by using the bracketed “provided” language. BACK

7 Along with the definition of confidential information, the receiving party’s obligations

are the core provisions of a confidentiality agreement. Receiving parties are typically subject to broad affirmative duties to protect and keep the disclosing party’s information

confidential, except as expressly permitted by the agreement. BACK

8 The receiving party’s duty to safeguard the confidentiality of the disclosing party’ s

information is often tied to a certain standard of care; in this case, not less than a reasonable degree of care. BACK

9 This sentence prohibits disclosure of the confidential information to third parties.

BACK

10 This provision strictly limits the ways in which the receiving party may use a disclosing party’s confidential information. If an agreement only restricts the disclosure

of confidential information, the receiving party may be able to use the d isclosing party’s confidential information internally (without any disclosure to third parties) to gain a

competitive advantage against the disclosing party or in other ways that may diminish the proprietary value of the information or otherwise negatively affect the disclosing party’s business. BACK

11 In addition to these standard obligations, certain types of personal information that are commonly held by businesses (such as employee records and customers’ financial

accounts) may be subject to special requirements under various federal and state privacy and data protection laws and regulations. If either or both of the parties anticipate sharing

any of this personally identifiable information under a mutual confidentiality agreement, the parties should insert a provision requiring that the receiving party comply with all applicable laws and regulations in protecting the confidentiality of this information and

refrain from using this information for any unlawful purpose. The receiving party may want to have the applicable laws and regulations that govern the disclosing party’s

information specifically listed, as it may not be familiar with them. The parties should consider a restriction on transferring this information to another

jurisdiction if that transfer would raise data protection issues. This type of restriction would be especially relevant for agreements with service providers that use employees

and contractors in other jurisdictions to reduce costs. If the party that anticipates being the receiving party does not believe that it will need access to any personal information in the other party’s possession, it should add a provision to the agreement expressly

prohibiting the disclosure of this information and requiring the disclosing party to redact all such information from any materials that it anticipates sharing with the receiving party.

For more information on privacy and data security law, please contact Cameron Sellers at 650-269-3366 or cameron@ascendalaw.com.

The parties should also consider inserting a requirement for the receiving party to immediately notify the disclosing party of any unauthorized disclosures or other breaches

of the agreement by the receiving party or its representatives. BACK

12 The parties may wish to keep the existence and terms of the agreement itself confidential, not just the information disclosed under it. However, some parties may

object to this provision for legal or practical reasons. For example, a regulated entity may be legally required to disclose the existence of certain discussions or a prospective buyer

of goods or services may want the flexibility to disclose that it is engaged in negotiations to leverage its bargaining power with other potential sellers. For these reasons, this language is bracketed as optional. BACK

13 A receiving party usually must share confidential information with its representatives, but this should be permitted only on a need-to-know basis. Optionally, the disclosing

party may want to approve these representatives, but also see following note. BACK

14 A party can manage the risk of allowing its confidential information to be shared

among the receiving party’s representatives by requiring (in order of increasing burden on the receiving party and its representatives):

Each party to ensure that its representatives are subject to confidentiality duties or obligations to that party on no less restrictive terms than the confidentiality

agreement. Confidentiality provisions in employee policies, employment agreements or independent contractor agreements are often considered sufficient, although the parties may wish to draft in a mutual representation and warranty

that these provisions have been or will be included in each party’s respective agreements with its representatives. Similarly, confidentiality duties owed by the

parties’ financial advisors and legal counsel are generally thought to be adequate, without the need for separate written agreements between a party and these representatives.

That the parties execute confidentiality agreements with each of their

representatives on terms that mirror the provisions in this agreement. Larger entities often object to this requirement due to the potentially overwhelming administrative burden of having its representatives execute separate

confidentiality agreements specific to certain entities and opportunities. However, one or both of the parties may be obligated to include this measure, whether under

applicable law or by way of an upstream agreement with a third party.

That the representatives of each party execute an individual acknowledgement or

confidentiality agreement directly with the disclosing party, as a precondition for access to confidential information. This is an onerous requirement in practical

terms but may be necessary if the disclosing party is under a legal, regulatory or contractual obligation to document who is in possession of its confidential information, and to otherwise closely control the disclosure and use of that

information. In that case, a possible compromise from the receiving party’s perspective would be to require the receiving party to maintain a record of

everyone who has access to the disclosing party’s confidential information. The receiving party to obtain the disclosing party’s consent before any disclosure

by the receiving party to its representatives. As this requirement inevitably

complicates and delays the exchange of information, parties should only insert this provision if the information to be shared is classified or subject to national

security restrictions, or if otherwise required by law, regulation or an upstream contract. BACK

15 The receiving party should be obligated to inform its representatives that the disclosing

party’s information is confidential, as this will help support a case for the disclosing party to hold the representatives themselves responsible under a non-contractual duty of

confidentiality. BACK

16 Parties often clarify that the receiving party will be liable for any failure by its

representatives to comply with the agreement. Alternately, the party that anticipates being the disclosing party will sometimes include language allowing it to seek recourse directly against the other party’s representatives (including its directors, officers and employees)

if they breach the confidentiality agreement. It is questionable whether these types of provisions are enforceable, due to lack of privity with the representatives. In addition,

many companies find these provisions objectionable because they undermine the veil of protection from personal liability that entities are intended to provide. Therefore, these options are not included in this sample template. BACK

17 Be aware of language that obligates the receiving party to “cause” or “prevent” its representatives from taking or refraining from taking certain actions. This obligation

presumes that a receiving party has the ability to control the activities of its representatives. Because this is rarely the case, parties to mutual confidentiality agreements generally prefer to obligate the receiving party to “inform,” “direct” or

“instruct” its representatives. BACK

18 These carve-outs are standard, but they can be drafted more or less broadly by either

excluding or including the optional bracketed language. The party that anticipates being the receiving party prefers broader exclusions to minimize its operational and

administrative burden under the agreement. The party that anticipates being the disclosing party wants narrower exclusions to maintain the most protection of its confidential information. For example, a receiving party would argue that the carve-out in

subsection (c) for information obtained from third-party sources should not include the optional phrase “legal, fiduciary or” so that the exclusion will apply unless the third party

breaches a binding contractual obligation, regardless of whether the third party violates a non-contractual duty to the disclosing party. BACK

19 This section provides conditions under which a party may disclose the other party’s

confidential information if required by law, regulation or valid court order from a

competent government authority. Only disclosures that are spec ifically required (as opposed to “requested”) should be permitted. In addition, the parties should ensure that

this provision only applies to disclosures that are compelled by applicable regulation or a valid court order, not just those “required by law,” which is why the bracketed language is optional. BACK

20 The receiving party’s obligations to provide sufficient notice and cooperation are intended to allow the disclosing party to make a timely objection to a compelled

disclosure. In most agreements, these provisions require only “prompt” notice (as opposed to a defined period) and cooperation, often including the phrase “commercially reasonable efforts” as a hedge in the event the receiving party is prevented from

providing sufficient notice or cooperation for reasons beyond its reasonable control. BACK

21 The disclosing party should bear the cost of any action that it takes to prevent the

disclosure of its confidential information. To eliminate any ambiguity as to which party

would bear the cost in these circumstances, the parties should insert the words “a t the Disclosing Party’s sole cost and expense” where the action is referenced. BACK

22 The parties should avoid any obligation to obtain a legal opinion from counsel before

making disclosures. The process for securing an opinion letter from outside counsel is expensive and time consuming. Instead, include an obligation for the receiving party to

obtain the “advice” of its counsel before making any required disclosure. BACK

23 The parties may wish to limit their potential responsibilities as the receiving party

under this provision to merely providing notice and cooperation to the disclosing party, omitting any further obligation to seek confidential treatment by the court or agency compelling disclosure, which is why this language is bracketed as optional. BACK

24 If the parties operate in the same commercial space or industry, a party that expects to more often be the receiving party should consider inserting this optional section to state

that neither the execution of the agreement nor the sharing of confidential information will prevent the parties from developing similar products or providing similar services

that might compete with the other party’s products or services, provided that the parties do not violate the agreement in so doing. BACK

25 It is not often clear whether the non-use restriction of a confidentiality agreement

applies solely to the actual information disclosed. Because of this lack of clarity, some receiving parties fear that their employees may be considered “tainted” by the general

knowledge they retain from their exposure to a disclosing party’s confidential information and, as a result, be prevented from working on certain projects and initiatives. In addition, receiving parties could also suffer competitively by not being able to leverage

the “know-how” that their employees naturally develop through information obtained in the course of their employment, including third-party information that is governed by a

confidentiality agreement.

For these reasons, receiving parties sometimes insert residual information clauses as a

carve-out to restrictions on using confidential information. This provision allows the receiving party to use residual information derived from the disclosing party’s confidential information in the receiving party’s business. Residual information is often

defined as information (including any ideas, concepts, techniques or know-how) retained in the unaided memory of the receiving party or its representatives who have been

provided access to the disclosing party’s confidential information. Disclosing parties often reject residual information clauses. From the disclosing party’s

perspective, this provision limits the effectiveness of an important contractual protection by making it more difficult to ascertain whether the receiving party is inappropriately

using the disclosing party’s confidential information. If the disclosing party does accept some form of a residual information clause, a proviso reaffirming the disclosing party’s right, title and interest in and to any intellectual property rights tied to the disclosed

information is standard. If the residual information clause is silent on this issue, one could argue that the provision implicitly grants to the receiving party a license to use any

intellectual property embodied in the confidential information. Also, a disclosing party will likely object to any attempt to apply this type of clause to its financial information, customer information and/or trade secrets. From the disclosing party’s point of view,

some information may just be too valuable to allow the receiving party to even indirectly use.

While we have tried to address the most common reasons for and objections to a residuals clause, this is a complex issue with many solutions to consider, such as limiting

the definition of Confidential Information or restricting access to the Confidential Information to specific employees of the receiving party. For more an in-depth discussion

of how to draft an appropriate residuals clause, please contact Cameron Sellers at 650-269-3366 or cameron.sellers@fseip.com. BACK

26 In the course of ongoing discussions between the parties, the receiving party may

provide suggestions, comments or other feedback, such as new features or functionality, on the Confidential Information of the disclosing party. Without this optional clause, the

receiving party may claim IP rights in any improvements, features or actions taken by the disclosing party based on such feedback and may even seek royalties from the disclosing party for the sale or license of such improvements or features. Since this is not intended

as a commercial agreement, this clause makes it clear that, unless agreed to in a separate agreement between the parties, feedback is not confidential to the receiving party, that no

license is required to use the feedback, and that the disclosing party is free to use the feedback in any way it chooses. BACK

27 Mutual confidentiality agreements often provide that each party retains any and all of

its intellectual property and other rights in the confidential information that it discloses, and disclaim any transfer of ownership or grant of license to the receiving party. This

provision prevents either party from asserting that it was implicitly granted a license or

other right to use the other party’s information outside the scope of the agreement. BACK

28 While confidentiality agreements can be structured to run indefinitely, mutual

confidentiality agreements often terminate on a fixed expiration date or on the occurrence of certain events or conditions, such as the conclusion of the defined business purpose or

the signing of a principal agreement.

A term of one to three years is typical, with either party having the right to terminate earlier by providing written notice to the other. The parties may also structure a confidentiality agreement to remain in effect even after the parties have entered into a

principal agreement. To do so, this provision should be structured so that the confidentiality agreement becomes coterminous with the principal agreement, once it is

executed. If the parties contemplate entering into multiple principal agreements, then the confidentiality agreement should be structured to become coterminous with the last agreement in effect between the parties. BACK

29 The parties’ rights and obligations concerning any information disclosed during the term are often set to survive any termination or expiration of the agreement, typically for

a defined period of time either from the end of the term (preferred) or from the date on which each item of information is actually disclosed (may be administratively difficult to

track). A party may prefer a longer or shorter survival period, depending on whether it expects to be more often the discloser or receiving party of information under the agreement.

In the past, survival periods have typically lasted three to five years depending on the

type of information involved. However, recent case law suggest that including a short time period (even 5 years) is an indication that the disclosing party does not consider the information a true trade secret. For confidential information that will not remain relevant

and valuable for a long period, a shorter survival period is acceptable.

In addition, if a party is disclosing highly sensitive trade secrets, it is common to carve out a perpetual survival period for this specific information or specify that the survival period for this information will last as long as it qualifies as a trade secret under

applicable law. The parties should also consider a carve-out for personal information and any other information protected by rule, regulation or law, so the receiving party’s

obligations concerning this information will continue for any mandatory period. BACK

30 This automatic trigger to return information is preferred by parties that tend to disclose information, but managing this obligation may be difficult for parties that enter into a

large number of confidentiality agreements in the normal course. BACK

31 At a minimum, the receiving party should be obligated to “promptly” return or destroy

the confidential information in its possession. It is usually unrealistic to expect a receiving party to “immediately” return or destroy this information, so parties may insert

specific deadlines (such as five business days) for the receiving party to comply. In a mutual agreement, however, creating a deadline may actually work against the disclosing

party, as it may not have the internal resources to meet the deadline itself, as a receiving party. BACK

32 Ideally, from the disclosing party’s perspective, the receiving party should be obligated

to return all confidential information. However, it is burdensome and often impractical for a receiving party to track and compile all the information to be returned. Therefore, as

an alternative, many parties allow a receiving party to destroy the information (and any internal notes and other materials generated from it). If a receiving party has the option to destroy rather than return material, it should be required to certify to the destruction in

writing. BACK

33 Parties commonly include the right to retain confidential information for legal

compliance purposes or because the materials will have become embedded in electronic and offsite files as part of systematic back-up and archiving procedures. A party may also

be legally required to retain certain internal records containing others’ confidential information, such as board minutes. BACK

34 Strategically, the parties will want to state that engaging in discussions and exchanging

information under the confidentiality agreement do not obligate either party to entertain or enter into any follow-on arrangement or transaction. This section ensures there is no

ambiguity in the parties’ mutual understanding of their relationship at this stage and their expectations on any further dealings. BACK

35 It is common for the parties to disclaim all warranties on the accuracy and

completeness of the confidential information that each party respectively discloses under the agreement. This is intended to prevent a receiving party from claiming that it suffered

damages in reliance on the disclosing party’s confidential information. A party that expects to primarily be the receiving party should look to include a qualifier stating that

these disclaimers apply only to the confidentiality agreement and not to any other agreements between the parties (including any principal agreement), because those agreements will often have separately negotiated warranties. BACK

36 This optional section should be included if the disclosing party intends to share future

product plans and such disclosure would impact revenue recognition. BACK

37 Transferring certain software and technical data outside the US is subject to the Export

Administration Regulations issued by the US Department of Commerce under the Export Administration Act of 1979. For example, an item may be deemed exported if it is made

available to anyone other than a US citizen or resident alien, or if access is granted to a US-located asset from an offshore location. Companies commonly include this provision in a non-disclosure agreement to restrict the receiving party’s ability to use or export the

Confidential Information outside of the US, and obligate the receiving party to comply with any applicable US export controls, including obtaining necessary export licenses.

The indemnity clause at the end of this section gives the disclosing party additional protection in the event that the receiving party does not comply. BACK

38 Due to the potentially serious consequences of an unauthorized disclosure by a

receiving party and the difficulty of ascertaining monetary damages in that event, confidentiality agreements often provide for the possibility of a disclosing party obtaining

injunctive relief (in addition to any other available remedies). This optional section should be used when you are more often the disc losing party. From the disclosing party’s

perspective, you want the receiving party to agree that breach “will” cause irreparable harm, that you are entitled to an injunction, and to waive any requirement of posting a bond when taking such action. As the receiving party, you can either leave this provision

out of the agreement or soften the language to “may” cause irreparable harm and “seek” an injunction, as a party claiming a breach must still prove in court that a breach did in

fact occur (or in the case of a motion for an injunction, that there is a substantial likelihood of success of proving on the merits that a breach occurred) and persuade the court that injunctive relief is otherwise warranted under the circumstances. Also, the

receiving party usually does not waive any requirement that the non-breaching party posts a bond or prove damages when taking such action.

Also consider specifying that the prevailing party in litigation will be reimbursed for its costs and expenses, including attorneys’ fees and court costs (contrary to the general rule

under US common law). If a party anticipates that it is more likely than the other party to bring a suit for breach (in this case, if the party expects that it will more often be the

disclosing party), it should try to include a provision entitling the prevailing party to reimbursement of its attorneys’ fees. Conversely, a party that anticipates having to defend against a suit (that is, expects to more often be the receiving party) should resist or try to

limit this right to a fixed amount, to discourage the other party from litigating. BACK

39 Parties typically try to maintain consistency regarding governing law, jurisdiction and

venue across all transactions they undertake together. Because the confidentiality agreement is often the first document that the parties execute, extra care should be taken

in considering this provision. BACK

40 Typically parties are not permitted to assign their obligations under a mutual confidentiality agreement to any third party or affiliate without the other party’s consent,

with the common exception being an assignment in connection with a change of control (merger or acquisition). Parties should avoid inserting provisos stating that consent to

assignment may not be “unreasonably withheld, conditioned or delayed” in mutual confidentiality agreements because this language loosens the disclosing party’s control over who can access the information and, more importantly, may impact whom it can

hold accountable in the event of a breach. BACK