Monthly Archives: April 2015

Is there a “standard” duration for a non-disclosure agreement (NDA)?

Time flies 1200x234What duration is standard for an NDA?  

No surprise – “that depends.”  There is no legal requirement for a specific duration.  The duration is completely up to the parties of the agreement.

That said, people think and work on year-based intervals.  Most frequently, the durations used for non-disclosure agreements are 2, 3, and 5 years, which are the durations of the standard term used in the EasyNDA agreement.

BUT – There’s more to the NDA than duration alone:  There is whether or not the agreement terminates after a predefined duration, and the “term” after proprietary information is exchanged during which confidentiality must be maintained.

Though some NDA’s automatically terminate after a specified period of time (in terminating agreements, this period of time is often referred to as the “term” of the agreement), it is not uncommon that some agreements never terminate (automatically).

This means there are two kinds of agreements:

  • Terminating, and
  • Non-terminating

Terminating agreements have an effective date on which the agreement starts, and a duration after which the agreement stops. In these terminating agreements, the duration of the agreement is often called the “term” of the agreement. The “term” of the agreement therefore, can refer to how long the agreement is in effect.  

What can be confusing, is that the same “term” can also refer to the period of time after which proprietary information is exchanged that the receiving party’s duties of confidentiality continue – whether or not the duration of the agreement has passed.

For example, a three-year termed agreement may come to an end three years after the effective date; however, the receiving party of proprietary information exchanged on the last day of that three-year duration, or term, will CONTINUE to have a duty of confidentiality for that last exchanged information an additional three-years; again, the “term.”

Terminating agreements have a problem though.  The problem comes into play with trade secrets. Trade secrets are those bits of proprietary information that never lose their value – in fact, are priceless to the owner of the trade secret (think Coca-Cola formulations). If a trade secret is disclosed under a terminating NDA, then after the term, the receiving party is no longer under a duty of confidentiality for the trade secret. Trade secret protection is one of the reasons for using non-terminating agreements.

Therefore, a term-limited NDA makes sense only for limited-life information, e.g. marketing plans which will be used by the end of the term.  A terminating NDA would be an unwise choice for other types of trade secret information with longer-term value, such as recipes, processes, source code, etc. because the asset may need protection for longer than the term of the agreement.

Non-terminating agreements don’t terminate (duh) and are perpetually in effect as long as neither party takes action to terminate the agreement. Non-terminating agreements are convenient for parties that have on-going relationships.

The “term” of confidential duty for non-terminating agreements is the period of time after the disclosure of proprietary information once the agreement has been actively terminated.  

For example, EasyNDA’s agreement remains in effect perpetually unless one of the parties terminates the agreement (which can be done within one business day of written notice). The term of the agreement can be set to 2, 3, or 5 years. This is the period of time after termination of the agreement that confidentiality of proprietary information exchanged must be maintained by the receiving party:

TERM
This agreement is effective as of the Effective Date specified above (the “Effective Date”) and continues until terminated by either party as provided in Section 9. Notwithstanding the termination of this Agreement, each party’s duties with respect to the other party’s Proprietary Information shall continue for [ term of the agreement ] after the time of disclosure.

And can be terminated:

TERMINATION
Either party may terminate this Agreement at any time by giving one business day’s written notice to the other party at its address provided above, after which Recipient’s obligations to Discloser are limited to that Proprietary Information disclosed before termination,

Learn more on EasyNDA’s FAQ page.