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The nondisclosure agreement can be an important safety measure for parties that will be disclosing confidential or proprietary information in the course of discussing or negotiating a potential business relationship. Parties should enter into nondisclosure agreements (NDAs) in the early stages of their negotiations, before any other formal agreement establishes the relationship. To ensure that their confidential or proprietary information will be adequately protected, disclosing parties should make sure that their NDAs contain the provisions set forth below. PURPOSE OF AGREEMENT To define the relationship of the parties and the scope of information to be protected, the NDA should begin with the parties’ acknowledgement that: (1) they are contemplating a certain business relationship (for example, “X wishes to sell widgets to Y”); (2) they will be disclosing certain information in connection with this relationship; and (3) such information needs protection against disclosure or unauthorized use. The parties may further agree that the disclosure of such information does not obligate or commit either party to enter into any type of business relationship. DEFINITION OF CONFIDENTIAL INFORMATION The NDA should define what constitutes “confidential information.” This definition should include any nonpublic information that the disclosing party considers “proprietary,” “confidential” or of a “trade secret” nature. The definition also may include a list of particular items that will be considered “confidential information.” (As an additional measure of protection, the NDA may require all confidential information to be marked “confidential” or “proprietary.”) The definition should apply retroactively to any information that has already been produced between the parties; it also should apply to both oral and written communications. Finally, the NDA may state that the existence and terms of the NDA itself may be considered “confidential information.” EXCEPTIONS TO CONFIDENTIALITY The receiving party should ensure that the definition of confidential information explicitly excludes: � Information generally known to the public irrespective of the receiving party’s disclosure; � Information that the receiving party possessed prior to disclosure, unless the receiving party wrongfully obtained the information; � Information that the receiving party developed independently without use of or reference to the confidential information; � Information learned from a third party that does not owe a confidentiality obligation to the disclosing party; and � Information that, pursuant to a subpoena, judicial order, etc., must be disclosed. PROTECTING CONFIDENTIAL INFORMATION To adequately protect against the unauthorized use or disclosure of its confidential information, the disclosing party should require the receiving party t � Use the confidential information only in connection with the transaction that the parties are contemplating; � Make reasonable efforts to protect the confidential information from unauthorized use or disclosure; � Limit disclosure of the confidential information to certain employees and agents on a “need to know” basis; � Make all recipients aware of the confidential nature of information and ensure their compliance with the terms and conditions of the NDA; � Notify the disclosing party of any unauthorized use or disclosure of the confidential information; and � Notify the disclosing party of any subpoena, etc., requiring disclosure of confidential information before complying with such subpoena, so that the disclosing party has the opportunity to challenge or limit the scope of such subpoena. � Return or destroy all copies of the confidential information when one party terminates the agreement or the disclosing party requests it. In addition, the NDA should include a statement that the disclosing party owns the confidential information, and that its disclosure of the confidential information to the receiving party does not create any licensing or intellectual property rights in the receiving party. The disclosing party should also disclaim any representation or warranty as to the accuracy or completeness of its confidential information. Finally, neither party should be allowed to assign its rights or obligations under the NDA without the other party’s prior written consent. DURATION OF OBLIGATIONS The term of the NDA should be reasonably related to the time period during which the disclosing party intends to provide information to the receiving party. The NDA should provide that the receiving party’s confidentiality obligations will remain intact for a reasonable period of time after the NDA’s termination. When determining what constitutes a reasonable period of time, the disclosing party should consider the confidentiality obligations of the other parties who possess the confidential information. Most importantly, the NDA always should require the receiving party to keep trade secret information confidential for long as that information remains a trade secret. CHOICE OF LAW The parties should agree that a particular state’s laws and jurisdiction will govern the NDA’s terms without regard to conflict of laws or choice of laws principles. Although the parties may consider a state’s historical enforcement of NDAs or protection of trade secrets, they should always choose a state that bears some relationship to the parties. INJUNCTIVE RELIEF To protect a disclosing party’s right to request an injunction prohibiting the receiving party’s misuse of confidential information, the NDA should contain an acknowledgement stating that a breach by the receiving party may cause irreparable injury to the disclosing party and that the disclosing party may seek and obtain injunctive and other equitable relief against such breach. Revealing confidential information in the course of business negotiations always involves risk. Nevertheless, it’s often a necessary evil; without the disclosure of such information, negotiations often would not be possible. A properly drafted NDA can be an effective means of protecting sensitive business information. Including the elements described here should help you to achieve that end. Deborah Gordon is a partner in the Chicago office of Piper Marbury Rudnick & Wolfe. Her practice focuses on the areas of business, technology, venture capital, emerging companies and health care law. E-mail: [email protected] Joseph Collins is an associate in the firm’s Chicago office, where he practices in the areas of business, technology, emerging companies and electronic commerce law.

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