CONFIDENTIALITY AGREEMENTS

HOW AN NDA WORKS

NDAs are commonly signed when two companies (or individuals) are considering doing business and need to understand the processes used in each other's organization for the purpose of evaluating the potential business relationship. A properly drafted NDA can remain in place all throughout the business relationship, providing protection for intellectual property and other legal rights even after the relationship comes to an end.

NDAs can be "mutual", meaning both parties are restricted in their use of the materials provided, or they can restrict the use of material by a single party. The great advantage of a unilateral NDA is that it places no legal obligations on one party, usually the party that is disclosing the sensitive information. This is the ideal situation for the disclosing party - all the benefits but none of the obligations - but it is not always a simple task to get the receiving party to agree to this somewhat onerous term.

COMMON NDA PROVISIONS

The best way to understand an NDA is to go through a few typical provisions:

• Identity of the parties to the agreement (name, address, and other basic identifying information).

• The definition of what is confidential, which typically takes the form of a long list of items (i.e.: financial information, customer lists, product specifications, etc.) and a catch-all phrase to cover anything that’s not explicitly mentioned.

• The agreed exclusions from what must be kept confidential.

• The length of time confidentiality must be maintained.

• The law and jurisdiction governing the parties.

• An agreed method for resolving disputes (i.e.: litigation or arbitration).

• The official language of the agreement if it is bilingual (English/Chinese).

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Generally speaking, NDAs for use in China should be bilingual (English and Chinese) and be governed by Chinese law. An NDA is an important legal document and it should be drafted with care and attention to detail. For this reason, we always suggest you have an experienced Chinese lawyer draft your NDA and related legal documents.

OBLIGATIONS UNDER AN NDA

The recipients’ obligations with regard to the confidential information typically include: 

• restricting its use to approved purposes only;

• restricting disclosure only to persons with a need to know the information for those purposes;

• to use all reasonable efforts to keep the information confidential;

• to ensure that anyone else using the information abides by the obligations set out in the NDA;

• types of permissible disclosure - such as those legally required by a court order; and

• penalties for improperly disclosing confidential information.

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FLORA HUANG

Expat Group Leader, Partner

Flora and her team have a great deal of experience drafting NDAs for organizations operating in a wide-range of industries including consulting, manufacturing and high-technology.