[Updated 12 April 2018: I still use the approach outlined in this post.]
I’ve structured Koncision’s automated confidentiality-agreement template so that you have (1) a period during which one party provides the other with, or the parties exchange, confidential information and (2) a subsequent period during which a party that received information during that initial period must keep it confidential.
I had previously contemplated referring to the initial term as “the term of the agreement,” with the end of that period constituting termination of the agreement. That’s a pretty standard arrangement, but it flat-out doesn’t make sense. After the initial period, the contract is by no means over. Instead, it continues to serve its primary purpose—restricting disclosure of confidential information.
So I plan on no longer using “term” and “termination” with respect to the initial period. What I do instead will depend on the context, but if the confidentiality agreement relates to due diligence in advance of a proposed transaction, I have in mind using the defined term Due-Diligence Period for the initial period. [Updated 12 April 2018: I now use the defined term Disclosure Period.]
Some might find disconcerting a confidentiality agreement that doesn’t refer to termination. Well, any comfort derived from termination that is said to occur at the end of the due-diligence period would have to be based on a misunderstanding.
And otherwise, Koncision’s confidentiality agreement will say that the obligation to keep information confidential continues perpetually after the due-diligence period, for a stated time after the due-diligence period, or for some combination of the two. So far nothing in the drafting logic requires that I pronounce that the end of any such stated period constitutes termination of the contract.
But these ideas are about two hours old. Any thoughts?
I think it makes perfect sense to say that the agreement has not terminated until the confidentiality obligation ends. As you say, confidentiality is the entire purpose of the agreement, so it is strange to purport to terminate while allowing the main provision to survive.
On the other hand, I wouldn’t be an absolutist on the general point – plenty of agreements have termination provisions that allow certain clause (often confidentiality) to survive “termination”. As in this case, the agreement is not fully terminated, but in practice it is usually clearer (and perfectly intelligible) to talk of terminating the agreement subject to the survival of specific clauses, rather than the inverse (i.e. terminating specific clauses only).
W: I take your general point, but if one or more obligations continue beyond termination, I’d want to make that clear by means of a termination carveout.
And I wouldn’t use the word “survival” to refer to continuing obligations. “Survival” is generally used to express the notion that boilerplate such as dispute-resolution provisions remain in effect after termination. As I said in this July 2006 AdamsDrafting blog post, that’s so self-evident that it’s not worth saying in a contract.
Ken
Ken, there’s nothing inherently wrong with your approach. The “term” is definitely analogous to the period during which new obligations to maintain confidentiality can arise, i.e., the disclosing party can reasonably rely on the protections of the agreement. The “termination” refers to the ending of that portion of the relationship and the beginning of the tail period.
I’d be in favor of more general terms that can be applied to a broader range of contexts. Creating “due diligence period,” “joint venture operation period,” “outsourced sales period,” ad infinitum would not really help streamline things. Once drafted and a handful of terms tweaked for specific needs of a client, there is little value added in deciding which set of language terms is appropriate, especially when the underlying issues are not different.
Perhaps “unilateral/mutual disclosure period” and “[non- or] post-disclosure period” are reasonable generic terms that eliminate the “termination” word problem you mention.
Rick: There are basically two kinds of NDA, (1) those covering information provided by one party to the other while the parties explore a possible transaction and (2) those covering information provided in the course of an ongoing relationship. My proposed defined term “Due-Diligence Period” would apply to the first category. I’ve given it only five minutes’ thought, but I don’t think that you’d need a comparable defined term when you have an ongoing relationship, as usually there’s some external event marking the end of the initial period, usually termination of whatever contract governs the ongoing relationship.
I did think about using “Disclosure Period,” but seeing as Koncision’s NDA (in keeping with others) doesn’t refer to the parties “disclosing” information to each other, and seeing as NDAs are all about nondisclosure, I thought that “Disclosure Period” would be confusing.
Ken
Ken, I see your points about the use of “disclosing” or disclosure (and the irony with NDA is certainly there). But those are word choice issues that could be worked around with some brainstorming.
I guess my point is this: why create a dichotomy between the due diligence, pre-transaction sort of NDA and the ongoing relationship NDA? Both have to start somewhere, impose a set of obligations during the initial period, recognize some event or way of terminating the initial period, and impose a set of obligations during the tail period.
The way that companies actually terminate NDAs of the first type is usually through giving notice to terminate. The second type generally terminate with some other trigger. What’s the difference? The initial period is terminated by either the lapse of time or some external event (notice, a new integrated agreement, termination of a specified agreement, or a termination clause in a new agreement that applies to the NDA).
I’m not saying that these types of agreements should be the same: there are clearly different interests at stake and the terms should vary. But that’s not the same as saying that distinctive language is required to delineate one type of “initial period” from another unless lawyers can’t remember which NDA they should be using based on the other terms and the language becomes a shorthand. That’s a reasonable argument, but you could consider implementing it in the title of the agreement rather than the defined terms.
One last point: what is gained by creating two concepts in a lawyer’s mind of a “Due Diligence Period” and a “Relationship Period?” Projects like yours are valuable because they streamline work into doctrinally appropriate categories that conserve brainpower for the work that lawyers should be doing.
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As an aside, you have greatly contributed to this field, and I’m pleased to see you moving toward greater success. It is shocking to read over “standard form agreements” that have been used for years and see the icky stuff that no one paid attention to. Thanks for opening my eyes.
Rick: Yes, the goal is to avoid unnecessary complexity. But due-diligence NDAs differ from ongoing-relationship NDAs as regards the nature of the initial period. But this is something that I’ll be hashing out over the next few days, so my mind remains open! Ken
Termination of agreements in general is something I struggle with. It seems like the norm is to provide for termination of the agreement and then create carve-outs so that certain covenants survive termination. It is pedantic of me, but I imagine all my boiler plate about jurisdiction and attorney fees terminating along with the rest of the agreement and a dangling non-disparagement covenant out there with no clarity on enforcement.
I feel like I’m going against the grain, but I feel more natural to continue along the path you have indicated and deal with time frames for the performance of certain obligations and not pretend that the agreement itself terminates.
Q: As a matter of contract law, dispute-resolution provisions and the like remain in effect after a contract terminates. That doesn’t affect the fact that the contract has terminated. Ken
I agree. It’s just one of those intellectual eddies from law school that I haven’t outgrown yet. Part of me feels like the contract should acknowledge within its four corners what any court would recognize.
To clarify why I’m in this mindset–as the trigger was not exactly in the scenario you describe with a termination at the end of performance–the other day I reviewed an agreement that provided that if certain payment dates were not met, the agreement would be “void ab initio.” Purporting to terminate the agreement midstream could leave a good deal of uncertainty (what happens to prior partial performance). Obviously it was not a well thought through document so I was just wondering how much of the problem stemmed from a lazy attitude to termination.
Ken:
One thing to watch for in your proposed structure is non-contractual rights to terminate the confidentiality agreement. That is, presumably, the agreement does not provide a method for terminating the confidentiality obligations following disclosure. But the background law of contracts may provide one anyway. I recall, in some foreign jurisdiction, that there was a doctrine allowing termination of a contract based on “fundamental breach” or some such. Likewise, in the US, you may need to consider when rescission is available as a remedy. (But I think that is mainly in a consumer context, not a business context.)
Another point is that one party may want to unilaterally terminate discussions during the disclosure period. I would most want to preserve this option in discussions with a competitor who might also be a collaborator. The problem there is that, the deeper discussions go, (a) the more my people may be tainted with exposure to the other side’s trade secrets and (b) the more likely it is that they have formed direct communication channels with their counterparts, though which confidential information could continue to flow even after the executives stop talking to each other. I would want the ability to end the disclosure period, so that anything else that comes through those channels does not taint my people. Presumably, the other party would then tell their own people not to send anything else, and any further disclosures would be at their risk.
(And, by the way, you can see that I have no objection to the term “disclosure period”!)
Chris Lemens
Chris: I’ll keep an eye open for contexts where your first point might be relevant.
And I have in mind allowing a party unilaterally to cut short the whatever-the-heck-I-end-up-calling-it period.
Ken
I think I’m in Rick’s camp for essentially the reasons he expressed.
I have no problem with using “term of the agreement” to describe the period during which information that one may receive or acquire carries with it the obligations of non-disclosure and non-use. Similarly, I don’t think that restricting disclosure is the primary purpose of NDAs. I think the primary purpose is actually to permit disclosure with the assurance that the information won’t go any further, and it seems quite natural to me to describe the period of time during which that can happen as the “term of the agreement” with a confidentiality period that extends beyond the term. After all, the best way to portect a secret is to keep it to yourself, and no one needs to sign anything to do that. The NDA is what you have to do to persuade people to whisper their secrets in your ear — or to let you thumb through their bank statements, or whatever.
But then again, what do I know?
Ken– I get what you are saying and have handled it in practice as a “Disclosure Period” for what you are calling the “Due-Diligence Period” (so the period of time covered by the contract for which the parties will exchange confidential information). This Disclosure Period can be a set amount of time or open ended (i.e., as long as the parties continue to disclose confidential information). The term of the agreement really is the term for the parties to under obligation to perform duties of confidentiality. This term usually survives for a period of time after the end of the Disclosure Period.
IHA: I’ve wised up and decided to use “Disclosure Period” myself. Ken
It was sometime early in my career, drafting executive employment agreements, that I realized the concept of “termination” is problematic. An employment agreement does not “terminate,” it is the parties’ employment relationship that terminates.
Does a contract every really “terminate”? It is much clearer to speak in terms of a period in which certain activities occur or duties persist; this period might terminate, but the contract lives on, because a suit can arise years later and the contract survives to address questions of choice of law, arbitration and the like.
I now try to avoid all references to a contract term or termination.
Mschley: You’re right that dispute-resolution provisions and the like live on. But I think it’s convenient to say that an agreement has terminated once all deal-related rights and obligations no longer apply. The fact that contract boilerplate will govern any subsequent dispute represents a rather narrow afterlife of the contract. Ken
It all depends on how you look at this type of contracts. Either you call them “non disclosure agreements” (NDA’s) or “confidential disclosure agreements” (CDA’s). The notion of “term” may naturally refer to the secrecy obligation or it may refer to the “safe period” during which the parties can exchange information covered by a secrecy obligation. I find it interesting to see you make this distinction in one of the comments below. I am convinced NDA’s (or CDA’s) are at the same time over- and underrated in day to day practice. Overrated in that they are rarely correctly implemented. The dangers of NDA/CDA’s are often insufficiently recognised. My concerns are specific as I am working in the technology transfer department of a university. (a constant balancing act between academia’s need to disseminate knowledge versus the obvious need to have some control over trade secrets and potential patentable ideas)