Is your farm or food business in business negotiations and you you considering using a Confidentiality Agreement or Non-Disclosure Agreement (“NDA”)? In most instances, bilateral NDA’s should cover the following issues:
(1) Legal Name of the Parties and Location. The NDA should use the parties’ legal name, address, and state of incorporation (if appropriate). It may be prudent to ask for a Certificate of Good Standing from the Department of State.
(2) Purpose of the NDA. The purpose of the NDA should be properly identified to help narrow down what information is to be considered confidential. Furthermore, the NDA should state that usage of confidential information should be limited to this purpose.
(3) Permitted Parties. Who may or may not be privy to any disclosed confidential information should be clearly identified. This may include employees and independent contractors on a “need to know” basis so long as they are bound by written agreement to maintain confidentiality.
(4) Identification of Confidential Information. Special attention should be made to how “Confidential Information” is defined in the NDA to ensure it properly includes every possible disclosure. This may include ideas, concepts, know-how, trade secrets, intellectual property, business plans and financial information. Keep in mind that disclosures may be either written or oral; thus, the NDA should state how the Confidential Information will be identified.
(5) Exceptions (or “Carve Outs”). Typical exceptions to confidentiality include: (a) is known prior to the date of disclosure, (b) is in the public domain, (c) was lawfully communicated to the recipient by a third-party, (d) was independently developed by employees, (e) was part of the written release by the disclosing party, and (f) when the law requires disclosure (e.g., court order or subpoena) allowing the disclosing party reasonable notice to obtain a protective order.
(6) Security. The parties to a NDA should take reasonable safety measures to protect the Confidential Information. The other party should be promptly notified in writing if there has been a breach of confidentiality.
(7) Term. It is always better for the disclosing party to have the longest term possible; however, with mutual NDA’s it is best to pick a reasonable term length that isn’t overly burdensome for either party. A typical term for NDA’s in the business community is three to five years. As a caveat, some NDA’s measure this term from the date of disclosure vs. the effective date of the agreement (which should be avoided, if possible).
(8) Procedures Upon Termination. The NDA should discuss how confidential information should be treated at the end of the term. For example, should the recipient return copies or destroy all written materials? May the recipient maintain a copy of all written materials?
(9) Ownership. It is paramount that the NDA state that the disclosing party retains ownership to the Confidential Information. As a caveat, some NDA’s include a “feedback exception” identifying ownership of all suggestions made during business negotiations; however, this may hinder open dialogue.
(10) Relationship of the Parties. The NDA should note the relationship between the parties. For example, if a farm or agri-business is entering into an NDA with an ag-technology company for preliminary business discussions, it should state that the parties are not in a joint venture, agency or partnership.
(11) How Disputes Will be Settled. The NDA should address how a dispute will be settled, under what state’s law, and whether attorneys’ fees and costs can be recovered for a prevailing party. The NDA should memorialize any preferences towards Alternative Dispute Resolution (“ADR”) including mediation or arbitration. If the parties wish to litigate a dispute or emergency, the NDA should identify which state’s courts may be used.
This is an excerpt from my book that I co-authored with Pat Dillon, an Iowa food and agriculture lawyer and author of this Iowa agriculture law book. You can purchase a copy of the book “Field Guide: Legal Guide for New York Farmers and Food Entrepreneurs” on Amazon.com. A new (more user-friendly) Kindle version of my book has been recently uploaded (only $9.99 or $2.99, if you own the hard copy of the book).