Nda Screening

Evaluation Framework

Work through the following ten areas systematically for every NDA that comes in.

1. Agreement Format and Direction

• Mutual vs. unilateral: Determine whether both parties share information (mutual) or only one side discloses (unilateral, and if so, confirm the direction is correct for the relationship)
• Context fit: Verify the NDA type matches the business scenario -- mutual for exploratory discussions, unilateral when information flows one way
• Standalone check: Confirm this is a pure confidentiality agreement rather than a confidentiality section buried inside a broader commercial contract

2. Scope of Protected Information

• Breadth: The definition should be appropriately bounded, not an all-encompassing net like "any and all information regardless of form or marking"
• Designation mechanics: If marking or written identification is required, confirm the process is workable (written confirmation within 30 days of oral disclosure is the market norm)
• Required exceptions: Standard carve-outs must be present (see Area 4 below)
• Overreach: The definition must not capture publicly available data or material the receiving party developed on its own

3. Recipient Duties

• Care standard: The agreement should require reasonable care, or at minimum the same level of protection the recipient applies to its own sensitive information
• Purpose limitation: Usage must be confined to the stated business objective
• Sharing restrictions: Distribution limited to individuals with a genuine need who are bound by equivalent obligations
• Practicality: No operationally burdensome mandates such as encrypting every communication or maintaining physical access logs

4. Required Carve-Outs

Every acceptable NDA must contain all five of these exceptions:

• Publicly available: Information already in or entering the public domain without fault of the recipient
• Already known: Information the recipient possessed before it was disclosed
• Self-developed: Information the recipient created independently without accessing or referencing the disclosed material
• Legitimate third-party source: Information obtained from another party who was free to share it
• Compelled disclosure: The right to disclose under legal, regulatory, or judicial compulsion, with notice to the discloser where law permits

5. Authorized Sharing

• Internal personnel: Employees with a need to access the information
• Professional advisors: Outside counsel, accountants, and consultants operating under matching confidentiality duties
• Corporate affiliates: Parent, subsidiary, or sister companies when the business purpose requires it
• Regulatory and judicial: Disclosures mandated by law, regulation, or court order

6. Time Boundaries

• Agreement duration: A reasonable window for the business relationship, typically one to three years
• Post-termination survival: Confidentiality duties should persist for a defined period after the agreement ends, typically two to five years; trade secrets may justify longer protection
• No perpetual obligations: Indefinite confidentiality commitments are unacceptable unless narrowly limited to trade secret material

7. Information Return and Disposal

• Trigger: Obligation activates upon termination or upon written request
• Scope: Covers all copies of protected information in any medium
• Compliance exception: Must allow retention of copies that law, regulation, or internal compliance and backup policies require
• Verification: A written confirmation of disposal is standard; a sworn affidavit is excessive

8. Enforcement and Remedies

• Equitable relief: An acknowledgment that breach could cause irreparable harm and that injunctive or equitable remedies may be appropriate -- this is standard language
• No pre-set damages: Liquidated damages provisions are unusual and unwelcome in NDAs
• Balanced application: In mutual agreements, remedy provisions should apply equally to both sides

9. Hidden Provisions to Flag

Watch for terms that do not belong in a standard confidentiality agreement:

• Employee non-solicitation -- inappropriate in an NDA
• Non-compete restrictions -- inappropriate in an NDA
• Exclusivity -- should not prevent either party from pursuing parallel discussions with others
• Standstill -- only appropriate in a formal M&A context
• Residuals clause -- if present, must be tightly limited to unaided memory of authorized individuals and must exclude trade secrets and patented material
• IP transfer or license -- an NDA should grant zero intellectual property rights
• Audit provisions -- not customary in standard confidentiality agreements

10. Jurisdiction and Dispute Mechanics

• Forum selection: Should be a well-regarded commercial jurisdiction
• Internal consistency: Governing law and dispute forum should be in the same or closely related jurisdictions
• Dispute pathway: Litigation is generally preferred over arbitration for NDA disputes; mandatory arbitration is a flag

Classification Rules

GREEN -- Approve for Signature

Every one of these conditions must hold:

• Mutual structure (or correctly-directed unilateral)
• All five required carve-outs present
• Duration within standard bands (one to three year term, two to five year survival)
• Free of non-solicitation, non-compete, and exclusivity provisions
• No residuals clause, or one that is tightly constrained
• Reasonable forum and governing law
• Standard remedy provisions without liquidated damages
• Authorized sharing extends to employees, advisors, and contractors
• Return/disposal provisions include a compliance retention exception
• Confidential information definition is reasonably bounded

Next step: Route for execution under standard delegation authority. No attorney review needed.

YELLOW -- Targeted Attorney Review

At least one of these conditions exists, but the agreement is fundamentally sound:

• Confidential information definition is broader than ideal but not unreasonable
• Duration exceeds the standard band but remains within market norms (five-year term, seven-year survival)
• One standard carve-out is absent but could be easily added
• Residuals clause exists but is narrowly tailored to unaided memory
• Governing law in an acceptable but secondary-choice jurisdiction
• Modest asymmetry in a mutual agreement (one party has slightly wider sharing rights)
• Marking requirements exist but are manageable in practice
• Return/disposal section lacks an explicit compliance retention exception (likely implied, should be added)
• Unusual but benign provisions (such as a duty to report suspected breaches)

Next step: Forward to the assigned reviewer with a specific list of issues. Typically resolvable with a single round of targeted edits.

RED -- Full Legal Engagement Required

At least one of these conditions exists:

• Wrong structure for the relationship (unilateral when mutual is needed, or facing the wrong direction)
• Critical carve-outs missing (particularly independent development or compelled disclosure)
• Non-solicitation or non-compete language embedded in the NDA
• Exclusivity or standstill terms without proper M&A context
• Extreme duration (ten or more years, or perpetual without trade secret justification)
• Definition so broad it could encompass public information or independently created work
• Expansive residuals clause that functions as a de facto usage license
• Intellectual property assignment or license grant concealed in the NDA
• Liquidated damages or penalty terms
• Audit rights with vague scope or no notice requirements
• Hostile jurisdiction combined with mandatory arbitration
• The document is not actually a confidentiality agreement (contains substantive commercial obligations, exclusivity, or deal terms beyond non-disclosure)

Next step: Do not execute. Engage counsel for comprehensive review. Prepare a counterproposal using the organization's standard-form NDA, or decline and negotiate.

Frequently Encountered Issues

Overreaching Confidential Information Definition

Preferred approach: Limit protected information to non-public material disclosed in connection with the stated purpose. Information should be marked as confidential or be of a nature that a reasonable person would recognize as sensitive given the context.

Absent Independent Development Exception

Preferred approach: Insist on a carve-out for material developed internally without access to or reliance on the discloser's protected information. Exposure without it: Creates vulnerability to claims that internally-built products or features derived from the counterparty's confidential material.

Employee Non-Solicitation Buried in an NDA

Preferred approach: Remove entirely. Non-solicitation terms belong in employment agreements, acquisition documents, or specific commercial deals. Fallback: If the other side insists, confine to active targeting (exclude general recruiting) and cap the duration at twelve months.

Overreaching Residuals Language

Preferred approach: Resist residuals clauses entirely. If unavoidable, restrict to: (a) general concepts and know-how retained in the unassisted memory of authorized personnel; (b) explicitly carve out trade secrets and patentable subject matter; (c) confirm no IP rights are granted. Exposure if too broad: Effectively creates a blanket license to exploit the discloser's sensitive information for any purpose.

Indefinite Confidentiality Duties

Preferred approach: Set a defined survival window of two to five years from disclosure or termination, whichever falls later. Offer a separate trade secret carve-out providing protection for as long as qualifying information retains trade secret status.

Routing Summary

For YELLOW and RED outcomes:

• Identify the specific reviewer or role responsible (when organizational routing rules exist)
• Provide a concise issue summary so the reviewer can quickly orient
• For RED-classified agreements, recommend substituting the organization's own standard NDA as a counterproposal when one is available