Author/contributor
Mary Messihi
Partner
Non-Disclosure Agreements are a bedrock of business relationships, providing assurance that sensitive information remains safeguarded. Having an NDA in place is just the start - compliance procedures need to be established as well. As companies engage in numerous transactions, the volume of NDAs can become overwhelming, creating critical challenges for compliance management. Let’s delve into the most common NDA compliance pitfalls and the practical solutions to navigate and master them successfully.
Non-Disclosure Agreements (NDAs) are a bedrock of business relationships, providing assurance that sensitive information remains safeguarded. Whether a potential investment, joint venture, service/employment relationship, and many more, an NDA or confidentiality provision is almost certain to make its way into the onset of the relationship. Having an NDA in place is just the start – compliance procedures need to be established as well.
As companies engage in numerous transactions, the volume of NDAs can become overwhelming, creating critical challenges for compliance management. Let’s delve into the most common NDA compliance pitfalls and the practical solutions to navigate and master them successfully.
Track Information Diligently
A major pitfall lies in losing track of the information shared under an NDA. Both the discloser and recipient must internally document the data accessed to prevent inadvertent mingling, loss, or misuse. To maintain confidentiality and facilitate compliance, centralizing information storage, categorizing data based on deals, and encouraging individuals involved to use restricted-access folders are effective strategies.
For the discloser, diligently tracking information shared to recipients warrants an additional layer of protection. Taking notes during meetings and calls further ensures a clear record of shared information, especially for sensitive data like trade secrets.
Avoid Unnecessary Outreach
Unrestricted outreach can lead to compliance issues, potentially sharing confidential information with competitors or numerous recipients with limited interest. Effective NDAs allow recipients to share information with specific third parties linked to the deal. Limiting internal and external disclosure only to essential deal team members is key. Implementing procedures to restrict access and dissemination within each party involved is a practical approach to minimizing risk.
Stay Mindful of Terms, Renewals, and Automatic Triggers
To prevent crucial dates and milestones from slipping through the cracks, it’s essential to organize and track contractual deadlines diligently. Both recipients and providers must be aware of the agreement’s duration, material destruction deadlines, automatic renewals, and basic confidentiality and non-use terms. Setting up scorecard systems, compliance calendars, and automatic reminders post-signing ensures proactive management of these dates and helps to facilitate appropriate actions to be taken.
For example, some NDAs may have automatic triggers for material destruction upon NDA expiration, requiring proactive tracking to avoid any surprises down the road. Disclosers must also stay vigilant about term dates to avoid unprotected disclosures or missing deadline dates for providing notice to recipients, such as requesting information destruction.
Remember Related Restrictive Covenants
Beyond confidentiality and non-use restriction covenants, NDAs can encompass other obligations. These may include non-solicitation, no contact restrictions with customers or suppliers, non-circumvention provisions with respect to the transaction, and standstills for acquiring securities and assets. Neglecting these restrictive covenants can lead to compliance nightmares if unintentionally breached. To mitigate this risk, maintaining comprehensive records and sharing awareness with relevant departments, such as commercial and HR, is a prudent practice.
Conclusion
Proactively addressing compliance pitfalls in NDAs is essential for building and preserving successful business relationships. By diligently tracking information, limiting unnecessary outreach, managing key dates, and remembering related restrictive covenants, companies can navigate the NDA landscape with confidence and safeguard their sensitive information effectively.
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