Do you ask your lawyer to check over template agreements that you have prepared yourself or obtained online for free or a fee? Unless you're experienced, you should. They may not provide the legal protection you think they do.
Such agreements are often riddled with errors or require customisation, even though you were not told upfront. The gaps and holes leave room for others to enter and take the treasures in your intellectual property castle.
A non-disclosure agreement ("NDA") is often the culprit in these do-it-yourself contract cases.
The NDA can contain errors or overlook very important factors that leave the client’s valued confidential information at risk of exposure. Some NDAs are based on foreign law, like the law of the U.S. and inexperienced parties fail to see how this can be fatal to the intended legal effect of the agreement.
Below are 8 common and significant errors in imperfect NDAs. Use the list to check how well your existing NDA template stacks up.
- Applies only one law. In Australia two areas of law can be used to strengthen an NDA, contract law and equity law. In fact confidential information law derives from equity law. Few NDAs are designed to benefit from this fact. Secrecy obligations can be imposed under contact law and as an undertaking under equity law.
- Aims to bind un-named parties. In law a failure to state important details such company names in full and A.B.N. details can be fatal. Mr Danny Jones is different from Danny Jones Pty Ltd and may be different from Dan Jones Jr.
- Unenforceable or questionable period of restraint. In Australia, it is prudent to stipulate a limited duration during which the confidential information must be kept confidential. In some cases it may be years or decades, but there should be a limit. The effect of the failure to include a duration is that the whole agreement could be put in doubt before litigation, as well as being questioned or struck down in court.
No governing law. Some template NDAs fail to specify the jurisdiction to apply for interpretation and adjudication of any dispute. Others specify a jurisdiction which is impractical, eg NSW when all parties reside in Queensland. The NDA should stipulate the governing law, ie which jurisdiction’s law is to apply, eg Queensland.
- Fails to provide some definition of the confidential information. The term confidential information may in some cases relate to a vast amount and various types of data, whether physical or non-physical. A client's focus is on stopping others disclosing confidential information. Overlooked often is the need to define, or even know, what precisely is that data they are talking about. The absence of a definition means that in the legal arena the NDA may secure nothing.
- Applies to only one entity, not individuals. The format of a template NDA often applies to only one person or entity on each side. Clients often need to legally bind both the company receiving party as well as the individual of that party (eg its CEO or relevant manager).
- Imposes impractical obligations. Clients need to check they are not unwittingly imposing obligations on themselves which in the circumstances are onerous, impractical or unlikely to be complied with, eg obtaining written NDAs from all their company officers, staff and contractors. Complexity is added if such provisions are also written in hard to understand language.
- Maintains false hope. Protection of confidential information is more effective and economical in the long term if there is more done than just signing an NDA. Protection is stronger if in addition there is proper document control mechanisms, document naming procedures, document management generally and a structured negotiation process for disclosure of information so that contract and equity law is applied as needs require. It's this combination that provides real protection in the event of a catastrophic leak or unauthorised use of information.
In a short list it is not possible to cover the broad range of considerations which a good NDA requires.
Call us for a quote for an error-free NDA tailored for you. We'll supply:
- A draft NDA customised for your situation
- An advice letter explaining how to use the NDA
- A user-friendly guide with practical tips on how to protect confidential information.
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