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How to Understand a Non-Disclosure Agreement

Sometimes called a confidentiality or proprietary information agreement, the purpose of a non-disclosure agreement or clause is always to protect one's intellectual property. Understand how to anticipate the potential pitfalls.


  • Step 1: Set a term long enough to protect the interests of the one disclosing without unduly burdening the recipient.
  • TIP: Disclosing parties want control permanently while receiving parties will want a short period.
  • Step 2: Review every word of the non-disclosure agreement to be sure it preserves confidentiality. Look for any waiver that disables the confidence agreed upon. Good fences make good neighbors -- anticipate the worst to avoid hard feelings and lawsuits later.
  • FACT: The formula for Coca-Cola, created over 100 years ago, was never patented in order to keep the formula secret forever.
  • Step 3: Negotiate issues such as limitations on employees' need to know. Agree on obligations for the recipient to protect the confidential information.
  • TIP: If a third party requires hard copies, ask them to sign at least two copies of the non-disclosure agreement so both parties can retain one fully signed original copy.
  • TIP: Disclosing parties are often reluctant to reveal key information in the contract, even as they shape language to conceal it.
  • Step 4: Accept that the more parties are involved, the more time negotiations will take. Be thorough and patient.
  • Step 5: Provide copies of the non-disclosure agreement to all principals. Everyone must sign the agreement, acknowledging they have read and understand their obligations.
  • Step 6: Stipulate limits on use of the information, with exclusions for certain parts the recipient knew previous to making an agreement. That information cannot be termed confidential under the agreement.
  • Step 7: Guard against disclosure of confidential or proprietary information owned by one or both parties who plan to share information. Retain legal counsel to define exactly what constitutes the confidential material.

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