Confidentiality Agreements: How To Draft Them And What They Restrict


I. Confidentiality Agreements And Their Effects Are Evolving -

A confidentiality agreement (also sometimes called a non-disclosure agreement or “NDA”) is typically the first stage for the due diligence process in a business combination or joint venture transaction (collectively, “M&A”) as parties generally are reluctant to provide confidential information to the other side without having the protection of an NDA. The target typically proposes its form of NDA, which may provide that it makes no representations regarding any information provided, and a negotiation of the NDA ensues. Some NDAs contain covenants restricting activities of the buyer after receipt of confidential information.

The recent cases discussed below highlight that possible consequences of an agreement to maintain the confidentiality of information can be far reaching and are evolving. These cases also teach that, in addition to the importance of having contractual provisions sufficient to accomplish the intended objectives, director awareness of the effects of provisions in NDAs their companies enter into can have fiduciary duty implications. Thus, the lessons of these recent cases should be considered by counsel and discussed with the client before an NDA is entered into for a significant transaction.


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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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