1. Copyright 2008 The Prinz Law Office.1 Getting Started with Drafting a Nondisclosure Agreement: A Brief Guide to the Elements and Key Considerations By Kristie D. Prinz Founder, The Prinz Law Office

2. Copyright 2008 The Prinz Law Office.2 Elements of the NDA I. Defining the Information to be Protected  Does the Information Need to be Stamped “Confidential” if written, or if oral, identified as “Confidential” at the time of disclosure and followed up with a written document identifying it as “Confidential”?  Does a specific definition explain what information the parties are agreeing to protect?

3. Copyright 2008 The Prinz Law Office.3 Elements of the NDA II. Defining Information which is Excluded  Is either party’s information excluded from protection, or is the protection mutual?  What, if any, information which falls under the definition, is excluded from protection? This typically includes information that is already in the public domain or information which the recipient obtains by another means than through disclosure by the other party.

4. Copyright 2008 The Prinz Law Office.4 Elements of the NDA III. Defining the Level of Protection Required  What level of protection is the receiving party required to afford the information disclosed under the agreement? What degree of care must be used by the receiving party?  Who can receiving party share the information with?  What terms can the receiving party agree to share the information under?

5. Copyright 2008 The Prinz Law Office.5 Elements of the NDA III. Defining the Level of Protection Required  What happens if the receiving party receives a subpoena or other government demand to produce the information?  Under what terms can receiving party release that information under subpoena or government demand? i

6. Copyright 2008 The Prinz Law Office.6 Elements of the NDA IV.What is the term of the agreement to protect the information?  Can either party terminate the agreement early? If so, under what conditions?  Are there clauses that should survive termination?  Can the agreement be assigned? If so, are there any competitors whom you would not want to have access to this information? Any divisions or subsidiaries of the same company?

7. Elements of the NDA V. Governing Law and Disputes  What is the governing law?  How will disputes be resolved? If the agreement is with overseas company, what language will be used to resolve the disputes?  Who should receive notice of any dispute? What is the permitted method of notice? (Generally you want to receive a formal document so that the document is given immediate attention upon receipt) Copyright 2008 The Prinz Law Office.7

8. 8 Key Considerations in NDAs I.Establishing that the Information Intended to be Protected by Agreement will Actually be Protected  If a stamping/written follow-up requirement is going to be relied upon, are there procedures in place to ensure that the stamping/follow-up will happen as required? If not, the information will not be protected.

9. Copyright 2008 The Prinz Law Office.9 Key Considerations in NDAs I.Establishing that the Information Intended to be Protected by Agreement will Actually be Protected  Has the other party inserted any language into the agreement to make the protections ineffective?  The most common “trick”: inserting retained knowledge clauses, which exclude from protection any information that an employee “remembers.”

10. Copyright 2008 The Prinz Law Office.10 Key Considerations in NDAs I.Establishing that the Information Intended to be Protected by Agreement will Actually be Protected  Also common: inserting language into the agreement that limits protection to information that is protected by a patent or copyright registration, which results in most information going unprotected.  Note: signing an ineffective agreement is often worse than having no agreement at all, since employees think that they are protected when they are not

11. Key Considerations in NDAs II.Confirming that Anyone who will have Access to the Information is Addressed  Has the correct agreement been used for the appropriate business entity? (i.e. if directors will have access to the information and you use the LLC agreement, then you have a problem)  Have contractors been considered? Subsidiaries and their employees?  Note: disclosures of information to third parties not addressed by agreement may breach the agreement Copyright 2008 The Prinz Law Office.11

12. Key Considerations in NDAs III. Determining Whether it is Necessary to Clarify How the Other Party Can Use the Information to be Disclosed  Consider whether the other party may want to use the information to develop a competing product, and clarify what uses you consider to be a breach and what uses you consider acceptable. Common issue: reverse engineering, disassembling, or studying parts to independently develop a product. Copyright 2008 The Prinz Law Office.12

13. Key Considerations in NDAs IV.Ensuring that there is a Clearly Defined Term to the Agreement  Perpetual agreements or agreements that end “x” years after the parties stop exchanging information are hard to renegotiate, also can be hard to determine what information is covered by the agreement  Easy to end up with multiple confidentiality agreements with overlapping terms and conditions Copyright 2008 The Prinz Law Office.13

14. Key Considerations in NDAs V. Is the Governing Law, Method of Dispute Resolution Advocated by the other Side Acceptable?  Are you familiar with the contract, trade secret laws and litigation procedures of the jurisdiction that the other side is seeking? If not, it may not be a good idea to agree to the governing law/dispute resolution in that jurisdiction.  If foreign, will the proceeding be in English? Copyright 2008 The Prinz Law Office.14

15. Copyright 2008 The Prinz Law Office.15 CONTACT INFORMATION Kristie D. Prinz, Founder The Prinz Law Office P.O. Box 1594 Los Gatos, CA 95030 kprinz@prinzlawoffice.com www.prinzlawoffice.com Phone: 408.884.3577 Fax: 408.317.0316