Commercial transactions may require you to disclose confidential information to advance your business interests. A non-disclosure agreement can help you share such information without compromising the integrity of your business and its operations.
Although a non-disclosure agreement should protect business secrets, enforcing the document has pertinent complications. It is, therefore, critical to understand the complexities so you know how to draft and enforce the agreement.
Here are five common difficulties of enforcing non-disclosure agreements (NDAs).
Non-disclosure agreements restrict parties from sharing confidential information. However, the court may not enforce the agreement if you don’t define confidentiality.
For instance, if the information is available in the public domain or the other party is already aware, it is no longer confidential. Additionally, any information originating from a third party is not confidential.
To ensure validity, you should define confidentiality, highlighting what type of information is confidential and how your partner will share and use the information.
Undefined Enforcement Penalties
NDA violations can have far-reaching effects on business progress. You should therefore have strict penalties for breaking the trust and agree on the best way to solve arising disputes.
You may hire a mediator or proceed to court litigation, depending on your agreement. The bottom line, however, is ensuring the agreement clearly defines the consequences so each party knows.
Having Unauthorized Signatories
An NDA can become void if it bears the signature of an unauthorized signatory. For instance, if your representatives do not have the legal authority to bind your organization with the non-disclosure agreement, they shouldn’t sign it. Similarly, if the document requires the signatures of multiple parties, ensure they’re all present when signing the document.
NDAs are sometimes prone to clerical and typing errors. However, omitting essential names like “Inc.” and “Limited” after the company name can invalidate the agreement.
On the other hand, most companies have legal names and trading names. Therefore, when writing your partner’s business address, include the legal and business name to avoid ambiguity and invalidation.
Non-disclosure agreements are subject to the laws of state jurisdiction, which may inhibit their application in other jurisdictions. For instance, enforcing the NDA may be difficult if the two parties reside in different states.
Non-disclosure agreements are subject to time limits, although confidentiality obligations can enjoy an extended time frame. For instance, an NDA may be valid for a year while the obligation to preserve confidentiality remains effective for three years. After the confidentiality period expires, the information will no longer be confidential.
Complexities in Quantifying Damages
Quantifying damages for breach is most difficult when negotiating NDAs. As a result, legal experts recommend adding a “liquidated damages” clause outlining the formula for calculating the damages. That way, the court will enforce the agreement if you prove that substantial damages occurred.
Drafting a valid non-disclosure agreement requires sound knowledge of the applicable laws. A qualified commercial attorney can help you navigate the complex process and create a foolproof document. And you can also make your work easier by downloading a free NDA template offered by Forms. Legal.