How to Write a Non Disclosure Agreement (NDA)

Co-authored by Clinton M. Sandvick, JD, PhD

Last Updated: July 25, 2021 References Approved

A non-disclosure agreement (NDA) is a common type of legal contract in which two parties agree to limit the use of any information they share. These agreements are also known as "confidentiality agreements," "proprietary information agreements," or "secrecy agreements." NDAs are generally used when the two parties feel it's to their mutual benefit to share certain information but want to restrict how that information is used or shared with third parties.

Part 1

Part 1 of 5:

Recognizing the Need for a Non-Disclosure Agreement

1
Identify trade secrets or confidential information. A non-disclosure agreement is most commonly signed when the parties are interested in entering into a business relationship. In general, NDAs are meant to protect the secrecy of technical or commercial information deemed valuable by one or both parties. The NDA restricts the usage of that confidential information.^{[1]
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- You should look over your business and identify information you believe qualifies as a trade secret, or that otherwise is confidential and which you wish not to disclose to anyone.
- NDAs may also be used to prevent forfeiture (or giving up without compensation) of patent rights. Losing patent rights can cost you money, but an NDA can prevent this from happening.
2
Decide if you need to share confidential information. Not all employees or independent contractors need access to proprietary information.
- For example, a cafeteria employee hired by an engineering firm would not need to sign an NDA.
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3
Protect confidential information before signing an NDA. One mistake parties make is revealing confidential information during negotiations as to whether an NDA is even needed.
- Speak only generally that you have “trade secrets” or “proprietary information” that you want to protect. Do not reveal the substance of this confidential information.
- Negotiations over an NDA will often revolve around the length of the agreement or exclusions. You do not need to reveal your confidential information to discuss these items.

Part 2

Part 2 of 5:

Defining the Terms of the NDA

1
Title the document. Title the document “Non-Disclosure Agreement” and then include a boilerplate introduction:
- “This Nondisclosure Agreement (the “Agreement”) is entered into by and between ______ (the “Disclosing Party”) and _____ (the “Receiving Party”) for the purpose of preventing the unauthorized disclosure of Confidential Information as defined below. The parties agree to enter into a confidential relationship with respect to the disclosure of certain proprietary and confidential information (“Confidential Information”).^{[2]
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2
Define the confidential information. The receiving party cannot comply with the NDA if it does not know what information it is not allowed to discuss or use. Be clear about what the confidential or secret information is so that the receiving party understands what is protected.^{[3]
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- Remember that the NDA does not protect information or types of information not explicitly outlined in the agreement. For example, if the NDA lists technical specifications and designs as confidential, but does not specify pricing information as protected, pricing information may not be considered confidential under the terms of contract.
- To make the agreement as clear as possible, all of the items that you want to be covered by the agreement should be mentioned. While there is a vast range of types of information that could be kept confidential, some common ones include:
  - technical information
  - financial information
  - engineering drawings
  - customer lists
  - vendor lists
  - business practices or strategies
  - prototypes
  - computer software
  - test results
  - tools, systems, and product specifications
3
Exclude non-confidential information. Exclude information that is public or already known to the receiving party, or which the receiving party legally receives from a third party. Exclusions are necessary to protect the receiving party should the information become common knowledge or already be in the public sphere.^{[4]
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Research source} The receiving party will want to use this information like all other companies in the marketplace.
- Include standard carve-out language for exclusions: “Confidential Information shall not include any information which is or becomes a party of the public domain through no act or omission of the Receiving Party, can be shown to be already possessed by the Receiving Party as of the date of disclosure, or shall be made available to the Receiving Party on a non-confidential basis by a third party having a right to do so.”^{[5]
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- The NDA should also exclude independently-developed information.^{[6]
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  Research source} You can include this carve-out by using a variation of this language: “Confidential Information shall not, however, include any information which is independently developed by the Receiving Party without use of or reference to the Disclosing Party’s Confidential Information, as shown by documents and other competent evidence in the Receiving Party’s possession.”^{[7]
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4
State the obligations of the receiving party. An NDA should include the specific obligations of the recipient of the confidential information. These are most often explained as the recipient’s duty to hold and maintain the confidential information, but this section can also place limitations on the recipient’s ability to use the information.^{[8]
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- For example, the following language is common: “Receiving Party shall hold and maintain the Confidential Information in strictest confidence for the sole and exclusive benefit of the Disclosing Party. Receiving Party shall carefully restrict access to the Confidential Information to employees, contractors, and third parties as is reasonably required and shall require these persons to sign nondisclosure restrictions at least as protective as those in this Agreement.”^{[9]
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- You typically will limit disclosure of information as well as use. Often, parties forget to include a limitation on use: “Receiving Party shall not, without prior written approval of Disclosing Party, use for Receiving Party’s own benefit or permit others to use any Confidential Information.”^{[10]
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5
List conditions that would allow the party to reveal confidential information. In some situations a party may need to disclose the information to outsiders in order to do his or her job. Make sure that any exceptions or special situations are explained in detail in the agreement.
- For example, an employee may need to provide information about a patent to a manufacturer so that the patent can be produced.
- It is standard to acknowledge that a recipient may reveal confidential information when ordered to by a court.^{[11]
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  Research source} Therefore, state: “The obligations under this agreement shall not apply to information disclosed to a court of competent jurisdiction.”^{[12]
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Part 3

Part 3 of 5:

Setting the Terms of Handling Confidential Information

1
Research the party’s confidentiality practices. Make sure that the party signing the agreement has clear, acceptable standards for confidentiality by researching their policies and track record. When two businesses sign an NDA, it is typical for both parties involved in the NDA to treat any confidential information that they receive as if it is their own confidential information.
- If the NDA is between an employer and employee, this would not apply because the employee would not be handing over any confidential information to the employer.
- You are not required to rely on the other party’s standard of care. In fact, some attorneys recommend using that standard only as a backstop. Instead, you should affirmatively define the standard of care itself.
2
Define the standard of care. Typically, NDA’s cover negligent, as well as willful or intentional, disclosures or unauthorized uses of information. The most common standards in the commercial context are “commercially reasonable” or, more strict, “in strictest confidence.”
- To establish the standard of care, simply state: “Receiving Party should protect the Confidential Information by using the same degree of care that Receiving Party uses to protect its own Information of a like nature, but in no circumstances less than the strictest confidence, to prevent the unauthorized use, disclosure, dissemination, or publication of the information.”
3
Set the terms of handling confidential information. If one party’s standards for protecting confidential information are inadequate, the NDA should clearly define the ways in which they are expected to keep the information confidential. This might include specific measures for preserving secrecy (such as labeling information "confidential," network security measures, etc.) and a list of individuals that are entitled to have the information.^{[13]
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- Include how the recipient should dispose of confidential information. At the end of the relationship, the recipient should either return or destroy the confidential information. Be sure to specify this.^{[14]
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- Include the following language: ”Upon termination or expiration, all Confidential Information furnished here under shall remain the property of the Disclosing Party and shall be returned or destroyed promptly upon request together with all copies of Confidential Information made by the Receiving Party. Upon request, the Receiving Party shall furnish the Disclosing Party written notice certifying destruction.”^{[15]
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4
Establish a time period for the disclosure of information. The NDA should clearly state the start and end date for the period of time in which the information may be exchanged between the parties.
- For example, you may wish to trade confidential information only at the start of the business collaboration. State the dates specifically.
5
Establish a time period for confidentiality. Include a start and end date for the length of time the information is to be kept secret. Five years is a typical length of time in US contracts, while European NDAs often extend this period to ten years.^{[16]
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- Seek a longer limitation if you believe that your confidential information will remain confidential past five years. For example, you could try to extend the duty of confidentiality indefinitely by using the following: “The nondisclosure provisions of this Agreement shall survive the termination of this Agreement and Receiving Party’s duty to hold Confidential Information in confidence shall remain in effect until the Confidential Information no longer qualifies as a trade secret.”^{[17]
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Part 4

Part 4 of 5:

Specifying How Disputes are Resolved

1
State the remedy for a breach. The remedy for a breach can include loss of employment, a court order stating the breaching party cannot continue to release the confidential information (an injunction), money for damages, or a predetermined amount of money.
- For example, you might include a line that identifies a specific dollar amount that must be paid by the breaching party: “If one of the parties breaches this Agreement, the non-breaching party is entitled to $5,000.”
- Specifying damages in this way is not recommended. If they are too high, some courts may construe them as a penalty and refuse to enforce them. Also, you may set the damages too low; if the breach causes more damage than you could have imagined, you might not get sufficiently compensated.
- Don’t forget to specify that injunctive relief might be sought. An injunction is a court order that a party stop engaging in certain conduct. Be sure to state, “Notwithstanding a suit for money damages, either party may immediately bring a proceeding seeking preliminary injunctive relief in a court having jurisdiction which shall remain in effect until a final award is made in the arbitration or lawsuit.”
2
Assign responsible for attorney’s fees if the NDA is breached. In most cases, both parties are responsible for their own attorney’s fees, but that rule can be changed. Parties can change the default rule by stating in the agreement that the losing side is required to pay the attorney’s fees of the winning side. This is known as fee shifting.
- To include a provision for payment of attorney’s fees, include something like this: “The winning party has the right to collect from the other party its reasonable costs and attorney’s fees incurred in enforcing this Agreement.”
3
Consider adding an alternative dispute resolution clause. Court proceedings are public. Anyone can gain access to the court proceedings as well as to information revealed during the discovery phase.
- ADR is usually faster, simpler, more efficient and more flexible than litigation. Also, using ADR is private, which is good for businesses that do not want their sensitive information to be revealed in court.
- To write an ADR clause into a nondisclosure agreement, use language similar to the following: “All claims and disputes arising under or relating to this Agreement are to be settled by mediation/arbitration/negotiation which will be conducted in the state of [whatever state the parties agree on].”

Part 5

Part 5 of 5:

Finalizing the NDA

1
Add an integration clause. This clause declares that the NDA supersedes all prior agreements and represents the final and complete agreement. This clause will protect you from the other party claiming that different provisions were agreed to outside the contract.
- Add an integration clause by stating: “This Agreement expresses the complete understanding of the parties with respect to the subject matter and supersedes all prior proposals, agreements, representations, and understandings. This agreement may not be amended except in a writing signed by both parties.”^{[18]
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2
Specify your choice of law. You can specify which state’s law applies should a lawsuit develop. You may want to designate the state whose law you are most familiar with, e.g., the state you work in.
- A simple choice of law provision would state: “This Agreement shall be governed by, and construed in accordance with, the laws of the State of Texas, without regard to principles of conflicts of law thereof.”
3
Add a signature block. At the bottom of the page, leave room for the signature of all parties. The signature block should contain the names of the businesses (if applicable), a signature line for the business’s agent, a line for the agent to print her name, and then a line for the date.
4
Sign before a notary. Include the information required for notarization:
- “State of [insert state], County of [insert county], on the [insert date] before me, the undersigned, [insert names], personally appeared, personally known to me on the basis of satisfactory evidence to be the individual whose name is subscribed to this application and acknowledged to me that he/she executed the application and swore that the statements made by him/her in the application and all supporting materials are true, complete, and correct.”
- Then include a line for the notary’s signature, another line for the Notary ID number, and a line for the notary’s license expiration date.

Warnings

While there are many templates available on the Internet, it is important to consult with an attorney when drafting and using a non-disclosure agreement. If your goal is to keep your information secret, it likely means that revealing that information will be detrimental or fatal to your business. Spending the extra money up front will help protect your business from unwanted disclosures.

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