PPT NDA v1 083015.pptx

GLOBALCAPITAL

USING THE NDA THE RIGHT WAY

How to create a process to protect your critical IP and other information

JAMES C. ROBERTS III

3Q15

GLOBALCAPITAL GLOBAL CAPITAL STRATEGIC GROUP | GLOBAL CAPITAL LAW GROUP PC

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THE MISUSED & MISUNDERSTOOD NDA

Clients often want a template that is supposed to: •  Cover all discussions/disclosures to establish a

business relationship with another company •  Cover all possible data under “Confidential

Information” •  Cover discussions with all possible companies

We ask too much of the NDA

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WE LOSE TIME & RESOURCES BUT DO NOT LESSEN ALL THE RISKS

Reviewing and negotiating the application of the template NDA to the particular conversation costs time and money (legal fees).

Risk Assessment: Given the stage of the discussions, are the risks worth the time and

resources spent?

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NOT ALL CONFIDENTIAL DATA ARE EQUAL

Some confidential information is vastly more important than the rest.

–  Source code is usually more important than pricing strategy; trade secrets are usually more important than source code (sometimes source code is a trade secret)

•  Disclose only that CI that is necessary for the purpose

•  Control that disclosure with terms crafted for that CI

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NDAS ARE ONLY FOR INITIAL DISCUSSIONS

Most NDAs are for initial discussions, prior to entering into a negotiated agreement.

– Most data disclosed in such discussions does not tend to be “mission-critical” for you.

What is critical to you to determine if you want to enter into that relationship?

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EXAMPLE: TRADE SECRETS

If you are initiating discussions to establish a business relationship, it is not likely that you are disclosing mission-critical information (e.g., trade secrets) at the beginning.

If not, then why are “trade secrets” included in the definition of “Confidential Information” in

most NDA templates?

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THE NDA IS ONE PART OF IP SECURITY

Where does the NDA fit? –  Initial discussions: The NDA –  Technology review: Eval Agreement –  Trade Secrets: Trade Secret Agreement –  Relationship: Operating Agreement –  Internal: CI/Trade Secret policies

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CRAFT THE NDA FOR EACH STAGE OF THOSE INITIAL DISCUSSIONS

1.  What data are critical to what stage of discussions?

2.  What is the purpose of disclosing what data? 3.  Who should have the right to receive the

data? 4.  How long should those obligations last?

Your NDA should be simple but narrowly applied.

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MATCH NDA WITH DATA

The less important (to you) the less important it is to have the “perfect” NDA. Therefore,

•  Create “categories” of confidential information based on importance to you

•  Determine NDA elements of disclosure control relevant to each category.

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CI CATEGORIES

CI by risk from unauthorized disclosure •  General: No material effect likely •  Sensitive: Problematic if disclosed •  Critical: Serious competitive disruption •  Trade Secrets: Serious damage

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“GENERAL” CATEGORY

General: Standard material for introductory discussions

•  Prior limited distribution or typically required or is discernible from public info (e.g., CrunchBase) •  e.g., pitch deck, feature list, sales sheets, sales

strategy, pricing, roadmap, investors, APIs, SDKs

Examples only. The list and criteria are created by the client

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“GENERAL” CI: STANDARD TERMS

If data in initial discussions is not mission-critical, then major “disclosure control” elements are not as important, e.g.,

•  Who can receive CI: broad group •  Definition of CI: broad definition (but exclude trade

secrets)—probably based on identifying CI •  How delivered: digital copies OK •  Term of non-disclosure obligations: prefer shorter

period (for administrative burden)—trade secrets must be excluded.

Standard “templates” often OK (if initially prepared by

counsel and used by trained employees)

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“SENSITIVE” CATEGORY

Considered necessary to move to more detailed “relationship evaluation” phase

•  Technical: explanations of underlying architecture of features/functionality to answer: •  Does it work as promised? •  Does it give us what we need/expect from

relationship? •  Other: financial/organizational capacity to

handle proposed relationship obligations

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“SENSITIVE” CI: TIGHTER TERMS

“Disclosure controls” more important: •  Who can receive CI: Specified individuals/groups

with need to know for that specific purpose •  Definition of CI: narrow definition (but exclude

trade secrets)—definitely based on identifying CI •  How delivered: digital copies probably not OK

—”digital data room?” •  Term of non-disclosure obligations: prefer shorter

period (for administrative burden)

Standard “templates” are not OK: Need to negotiate terms

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“CRITICAL” CATEGORY

To be disclosed only if relationship is critical and non-disclosure would preclude going forward with the relationship.

•  Most often technical info: •  disclosure so great that competing product could be

created •  Product performance: QA results, e.g., materials stress

tests in aviation

Question: If this information is disclosed and the relationship is not formed, how much damage will be

caused?

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“CRITICAL” CI: DO NOT USE AN NDA

Use a “Technology Evaluation Agreement” which gives you greater control over “Disclosure controls”:

•  Who can receive CI: Specified individuals/groups with need to know with specified tech evaluation criteria

•  Definition of CI: narrow definition (but exclude trade secrets)—only for specified purposes

•  How delivered: probably in-person or digital data room under full monitoring

•  Term of non-disclosure obligations: no copies permitted

Precise terms will depend on criteria developed with/by

client.

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TRADE SECRETS

Never include in an NDA because of risks of losing trade secret status

•  Trade secrets (generally) governed by state law •  (Generally) unlimited protected status •  Must maintain reasonable security standards,

especially internal to the company

Use a Trade Secret Access Agreement*

*See Trade Secret Litigation and Protection in California, 3rd edition.

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EXAMPLE: RECIPIENTS

“Generic” NDAs can be general in who is entitled to receive/view the information

•  We prefer identifying them, at least by employee category

“Sensitive” and “critical” categories be more specific—even as far as individual names.

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NON-DISCLOSURE DURING NEGOTIATIONS

Make sure that your NDA covers disclosure during negotiations or that the confidentiality provisions of the operating agreement address that issue.

This is best left to your lawyer

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NDAS AFTER THE AGREEMENT IS SIGNED

NDAs should continue to remain in effect because: •  They cover disclosures of information during

preliminary discussions and negotiations—prior to OA effective date •  Therefore, scrutinize integration clause

OA confidentiality provisions should cover disclosure/use thereafter

Have counsel decide on the above (e.g., integration

clause)

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THE LESSONS

Match the agreement with the critical nature of the information needed in each phase and: 1.  NDAs for discussions about forming a relationship 2.  Create criteria for types of CI to be disclosed 3.  Match by category, e.g., “generic” NDAs for

“generic,” non-critical CI. 4.  If any information is ranked critical or above

(especially technical info), do NOT use NDA to cover disclosure but instead

•  Technology Evaluation Agreement •  Trade Secret Use Agreement

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OBJECTION: TOO MANY AGREEMENTS & TOO COMPLICATED

Nope: 1.  Agreements match the importance of the CI being disclosed 2.  Once criteria have been established, most CI disclosed under

an NDA is “generic,” permitting use of template(s) •  Lawyers can focus their efforts on protecting critical IP.

3.  If an on-going relationship, NDA can be a “framework” agreement, with attachments specifying obligations by type of information.

4.  Clients should know what CI is being disclosed when, to whom and for what purposes.

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NDA/DATA SECURITY PROCESS

Next slide is a rudimentary yes/no process:

Blue=decision point Pink=legal involvement Olive=CI “category” criteria and guidelines created by legal but administered by non-legal Green=agreement

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Y

N

Trade secret?

N

Y

Technical?

Critical CI?

Y

N Negotiated NDA

Trade Secret Access Agmt

Tech Eval Agmt

! !

"

"

"

!

! ! #

$

!

!

Standard NDA

NON-DISCLOSURE AGREEMENT OBLIGATIONS: PRE-OA PROCESS

One-off?

Y

N Master Standard NDA (w/ atts.)

# $

!

!

Follow criteria for terms

!

!

!

!

Legal review & negotiations

Legal review & negotiations

!

PPT NDA v1 083015.pptx

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