Mutual NDA Checklist: What to Review Before You Sign

The definition is the heart of the agreement. A vague one is hard to enforce. A very wide one can trap you, because you promise to protect things you did not mean to.

• Both directions. The same definition should cover what each side shares.
• Form. Does it cover spoken, written and electronic information, and samples or demos?
• Marking. Some agreements protect only items marked "confidential." Others protect anything a reasonable person would see as private. Know which one you are signing, and write down what you share.
• Purpose. A good definition names the purpose, such as "to evaluate a possible partnership."

Federal law gives a useful model for the strongest category. A trade secret is business, technical or financial information that the owner has taken reasonable measures to keep secret, and that has value because it is not generally known. The agreement is one of those measures.

Sources: 18 U.S.C. 1839(3), definitions; Uniform Trade Secrets Act, Section 1(4)

Almost every NDA lists information that is not confidential. Look for these standard carve-outs, and make sure they apply to both sides:

• Information already public, through no fault of the person who received it.
• Information the receiving side already knew before the deal.
• Information the receiving side got from a third party who was free to share it.
• Information the receiving side built on its own, without using the other side's material.

The Uniform Trade Secrets Act draws a similar line. It protects information that is not generally known and is not readily found by proper means. Learning something by proper means is not misappropriation, but breach of a duty to keep a secret is "improper means."

Sources: Uniform Trade Secrets Act with 1985 Amendments, Section 1(1) and 1(4)

A mutual NDA has two clocks. One is the period in which the sides may share information. The other is how long they must protect it afterward. These are not always the same.

• A sharing period of one to two years is common. Confirm it fits your deal timeline.
• A fixed secrecy period after the end, such as a few years, is common for ordinary business information.
• Trade secrets are different. Many parties ask that they stay protected for as long as they remain trade secrets. A fixed end date could leave a true secret unprotected.

Sources: 18 U.S.C. 1839(3); 18 U.S.C. 1836(d)

The core promise has two parts: hold it in confidence, and use it solely for the stated purpose. Check both.

• Need to know. Who inside your company may see the material? Most forms allow employees, advisers and contractors who need it and who are bound by similar duties.
• Standard of care. Look for "at least the same care as your own confidential information, and no less than reasonable care."
• Return or destroy. When the deal ends, each side should return or delete the other's material on request. Check for an allowance for routine backups and legal records.
• No license. The agreement should say that sharing does not transfer ownership or give rights to use the information for anything else.

These steps matter in court too. Under both federal and uniform state law, the owner must show reasonable efforts to keep the information secret. Access limits and return rules are evidence of those efforts.

Sources: 18 U.S.C. 1839(3)(A); Uniform Trade Secrets Act, Section 1(4)(ii)

The Defend Trade Secrets Act became law on May 11, 2016. It lets the owner of a stolen trade secret sue in federal court, if the secret relates to a product or service used in interstate or foreign commerce. Before it, trade secret claims were mainly a matter of state law, and most states had adopted a version of the Uniform Trade Secrets Act.

Three points matter when you review an NDA:

• Whistleblower notice. An employer must give notice of the law's immunity for confidential reports of suspected violations of law to the government or an attorney. The notice goes in any agreement with an employee that governs trade secrets or other confidential information. The law counts contractors and consultants as employees. If you use the NDA with individuals, ask whether the notice is there. Without it, the employer cannot be awarded exemplary damages or attorney fees against that person.
• Time limit. A federal claim must be brought within 3 years of when the misappropriation was, or should have been, discovered. The uniform state act uses the same 3 years.
• Remedies. A court can issue an injunction, award damages, and, for willful and malicious misappropriation, award up to twice the damages. The law says an injunction may not stop a person from taking a job.

Sources: 18 U.S.C. 1836(b) and (d); 18 U.S.C. 1833(b); Uniform Trade Secrets Act, Section 6

Look at the last page. It sets which state's law applies, where a dispute is heard, and whether a party can ask a court for a quick order to stop a leak. Check that these terms are the same for both sides, which is the point of a mutual form.

• Is the chosen state one where you can realistically go to court?
• Does the agreement allow an injunction without proving money damages?
• Does it say which side pays legal fees?
• Does anything quietly make one side's duties heavier than the other's?

If a clause tilts one way, strike it or ask for a matching clause for the other side.

Sources: 18 U.S.C. 1836(b)(3); Uniform Trade Secrets Act, Sections 2 and 4

1. 18 U.S.C. 1833, Exceptions to prohibitions (immunity and notice). law.cornell.edu/uscode/text/18/1833
2. 18 U.S.C. 1836, Civil proceedings. law.cornell.edu/uscode/text/18/1836
3. 18 U.S.C. 1839, Definitions. law.cornell.edu/uscode/text/18/1839
4. Uniform Trade Secrets Act with 1985 Amendments, Uniform Law Commission. wipo.int, model law text