What to Include in an NDA: A Clause-by-Clause Checklist

The basics: parties, purpose and effective date

Start with who is signing. Use legal names, and if a party is a company, name the company, with a person signing for it. Then state the purpose, such as “evaluating a potential partnership.” It matters because the recipient may use the information only for that purpose.

Say whether the NDA is mutual or one-way, and in a one-way NDA, which party discloses; mutual vs. one-way NDAs explains the choice. Then set an effective date. A clean choice is the date the last party signs.

What’s protected, and what isn’t

The definition of confidential information is the heart of the agreement. A good one covers information that’s marked confidential or that a reasonable person would understand to be confidential, in any form: written, oral, visual or electronic. It often lists examples, like business plans, financials, customer information and source code. It can also cover the fact that the parties are talking at all, which matters when the discussions themselves are sensitive.

Then come the standard exclusions. The recipient isn’t bound for information that:

• is or becomes public through no fault of the recipient;
• the recipient already knew, without restriction, before it was shared;
• the recipient rightfully receives from a third party who has no duty of confidentiality;
• the recipient develops independently, without using the confidential information.

The recipient’s obligations

This is what the recipient actually promises. The standard terms are:

• Use the information only for the purpose.
• Share it only with representatives, like employees and advisers, who need to know it and are bound by confidentiality duties at least as protective, and answer for their breaches.
• Protect it with at least reasonable care.
• Don’t reverse engineer prototypes, software or other materials.
• Promptly report any unauthorized use or disclosure.
• If the law or a court compels disclosure, give notice where legally allowed so the discloser can seek a protective order, and disclose only what’s required.
• Return or destroy the information on request. Copies in routine backups can be kept, but they stay covered.

Term, ownership and remedies

Next come the limits and consequences. The term is the one people most often get wrong; how long an NDA should last explains the two clocks involved.

• Term: how long the agreement covers new disclosures, and how long the duty lasts for each one. Trade secrets are usually protected for as long as they stay secret.
• No license or ownership transfer: sharing information gives the recipient no rights in it or in the discloser’s intellectual property.
• No warranty and no obligation to do a deal: information is shared as is, and neither side has to share anything, keep talking or sign anything else.
• Freedom to compete: both sides can keep building their own products, as long as they don’t use the other’s information.
• Remedies: the discloser can ask a court for an injunction to stop a leak quickly, without posting a bond where the law allows.
• Whistleblower immunity notice: the Defend Trade Secrets Act (18 U.S.C. § 1833(b)) protects individuals who disclose trade secrets in confidence to government officials or attorneys to report suspected violations of law. When the recipient is an employee or contractor, leaving this notice out can cost an employer certain damages and attorney fees under that law.

The general clauses that still matter

The clauses at the end look routine, but each settles a real question:

• Governing law and venue: which state’s law applies and where disputes are heard.
• Entire agreement: the NDA replaces earlier understandings on the same subject.
• Amendments in writing, signed by both parties.
• Severability: if one clause is struck down, the rest survives.
• Assignment: no transfer without consent, except to a successor of the business.
• Notices: how formal notices are sent, such as by email.
• Independent parties: no partnership, agency or employment relationship.
• Electronic signatures and counterparts: the parties can sign electronically and on separate copies.

Extras a standard NDA leaves out

FastNDA’s template includes every clause above; you can read it in full on the mutual NDA template page. It deliberately leaves out the clauses below, and its clauses can’t be edited. If you need one of these, have a lawyer draft or review the agreement.

• Non-solicitation: a promise not to recruit the other side’s employees, or sometimes its customers, for a period. Common when one side will meet the other’s team, as in acquisition talks.
• Non-compete: a promise not to compete with the other party. State laws vary widely, and some states, such as California, sharply limit them, especially for employees. They usually don’t belong in an NDA.
• Standstill: a promise, typically by a potential buyer of a public company, not to buy its shares or make an unsolicited offer for a set period.
• Residuals: a clause letting the recipient use general ideas and know-how its people retain in unaided memory. It favors the recipient, and disclosers usually resist it.