That non-disclosure agreement you just signed may never expire
Thursday, October 23rd, 2014
Expired? or not? Creative Commons License from Mark Turnaukas
Non-disclosure agreements are pretty simple documents really.
Two entities get together and agree not to reveal what they share between them with anyone else. Oh, and they agree not to share this information with anyone else for a specific period of time, called the “term” of the agreement.
Common “terms” are 2, 3, and 5 years.
EasyNDA’s Non-Disclosure Agreement Term
From the date of termination of the agreement.
“What?” you say?
Doesn’t the agreement “terminate” at the end of the “term”?
No. Not always. In fact, not at all with modern NDAs provided by leading corporate law firms in Silicon Valley.
Instead, the agreements are perpetual. As long as the two parties continue to engage with each other and exchange information that is considered proprietary according to the agreement, the agreement remains in effect. In fact, the “term” is not triggered at all.
It isn’t until the agreement is terminated that the ‘term’ begins.
The good news is that modern non-disclosure agreements can be terminated by either party immediately (just send a written note — by post, courier, or fax (no e-mail, IM, sms, Yo!, or any other non-physical comms — to the other party ending the agreement).
Once a party has ended the agreement, THEN the term of the agreement kicks in. If the term is three years, the parties to the agreement are bound to its terms of non-disclosure for three years AFTER the last exchange of proprietary information.
Here’s an example. Orrick, Herrington & Sutcliffe LLP, a one of Silicon Valley’s six big corporate law firms, makes a non-disclosure agreement available for free download and use from Orrick’s website. The salient paragraph is number 12:
Term. The foregoing commitments of each party shall survive any termination of the Relationship between the parties, and shall continue for a period terminating five (5) years from the date on which Confidential Information is last disclosed under this Agreement.
The key words are “shall survive any termination … and shall continue for … five (5) years … from the date … information is last disclosed”
Think about what that means. You sign an agreement, receive some confidential information then go on about your business. Two, thee, five, ten – however many years later, the agreement is still in effect. In fact, the agreement is in effect FOREVER or until one of you actively terminates the agreement.
So let’s say you realize two yeas later that (a) your one-time partner/supplier is now your mortal business enemy, (b) the person in your organization who signed the agreement is still working for you, (c) the person remembers signing the agreement, (d) the person remembers that the agreement must be actively terminated, and (e) the person has the wherewithal to terminate the agreement with your now mortal business enemy. You and all of your employees STILL have to keep your enemy’s secrets for five MORE years after you end your agreement.
Of course, the agreement works both ways. Just as you have to keep their secrets, they have to keep yours. And that’s why non-disclosure agreements are set up this way. However, you run the risk of one of your employees (who is not as savvy as the one that remembered signing the agreement) can easily (and innocently) violate the agreement thus leaving an avenue of attack for your one-time supplier/partner and now mortal enemy.
Hey, It happens. Look at Apple’s $50M non-disclosure violation suit against GT Advanced.
So what should you do about this?
Number one, be aware of and understand the terms of your non-disclosure agreement. Understand that “term” isn’t the duration of the agreement, it’s the period of time AFTER the agreement has been terminated that both parties need to keep mum. So choose with awareness of what “term” means.
Number two, keep track of your NDAs. Since they often don’t expire automatically, use a service like EasyNDA that keeps track of your non-disclosure agreements for your whole team. When you’re not doing business with a company anymore, terminate your agreements to reduce your inadvertent disclosure exposure (unless it’s your secrets that want keeping).
Number three, keep an eye on agreements that terminate automatically. These leave you and your employees in a sense of protected comfort after signing them. Then later they automatically leave you high and dry — and no one will call to remind you. A service like EasyNDA can help keep track of expiring NDAs so that you can renew them with your ongoing business partners.
For an explanation of terms, download EasyNDAs printable non-disclosure agreement. The document has been vetted by EasyNDA’s Legal Advisory Panel and each paragraph is explained in simple language. Remember, EasyNDA non-disclosure agreements don’t chew up your time.
Great post. In most cases NDAs can be terminated with simple notice to the other side but the confidential provisions will survive for good.
We’ve been seeing more NDAs in the wild that include a “term” after the termination of the agreement during which confidentiality applies. There is a question over whether this is a good practice. “Confidential” is normally defined in the agreement with exceptions under which previously confidential information is not longer considered to be confidential. Logically, this definition of confidentiality would apply after an agreement is terminated without specification. Any information received that was confidential while the agreement is in place would remain confidential until the definition of confidentiality no longer applies — regardless of the passing of time after ending the agreement.