Non-Disclosure/Confidentiality & Non-Circumvention Agreements Before the Deal

Sometimes the introductions or preliminary negotiations that take place before the business deal closes and the parties sign on the dotted line can raise flags on both sides of the negotiating table.  There may be a little anxiety or internal struggle about where to draw the line when selling your idea and pitching business opportunities, all without giving away too much.

It will often be the case that when two or more parties are considering doing business together, the parties will have to share some information before an agreement is reached and finalized to assess the attractiveness and viability of the deal.  This will be true across the spectrum of possible business or commercial transactions – whether you are in talks for software development services, manufacturing, licensing, co-branding, distribution…etc., you name it, it is possible that a soon-to-be contracting company will have to share certain information to decide if this business relationship will move beyond this preliminary stage. 

Perhaps a reasonable analogy is dating.  You may go on a date to get to know someone better.  You learn things about a person on a date, and you can’t “unlearn” those things just because things don’t work out or someone decides…”Hey it was great getting to know you, but there won’t be another date.” It’s the same in business.  A potential business suiter or collaborator cannot “unsee” “unhear” or “unlearn” information that was shared with them in preliminary negotiations. 

So what options may be available? Agreements or clauses that are commonly used as protective aids in preliminary business talks are:

·         Non-Disclosure Agreements (NDAs)/Confidentiality Agreements

·         Non-Circumvention Agreements

·         Hybrid of the above

Nondisclosure and Confidentiality Agreements
Nondisclosure agreements (NDAs) and confidentiality agreements (CAs) are one in the same and go by many other names as well.  You may come across some of the other names, which are proprietary information agreements (PIAs), secrecy agreements (SAs), or confidential disclosure agreements (CDAs).  When you see these names, whether they appear as the title of an agreement or appear as clauses within an agreement, know that the goal here is to place restrictions on a party’s ability to disclose confidential, proprietary, or sensitive information that may be shared in the course of the negotiations, as a necessary part of the potential business transaction at hand.

Non-Circumvention
A non-circumvention agreement or clause is used to protect relationships, ideas, and opportunities under a business deal.  In a very general sense, non-circumvention means that a party will not inappropriately bypass the other party and use the other party’s information or connections for a purpose of pursuing unrelated business advantages. For example, this could include clients, personnel, vendors, etc. In essence, each party promises to use the information gained from the other party only for the purpose of pursuing the business relationship at hand, between the parties. 

Hybrid: Non-Disclosure Non-Circumvention Agreements (NDNCs)
NDNCs are a hybrid of the first two options, and like the previous options, are often used in the early stages of a business transaction.  The NDNC combines the purposes of NDAs and Non-Circumvention Agreements into a single agreement, and aim to (1) prevent one party from bypassing the other party to achieve business advantages unrelated to or beyond the transaction at hand, and (2) prevent disclosure of confidential, proprietary, or sensitive information that is shared during the preliminary discussions before the deal.

THINGS TO THINK ABOUT:
·         Think ahead about where you will be drawing the line in your pitches and meetings.

·         Is your agreement for one party, or is it mutual?

·         Don’t be afraid to ask for the protections that you want or feel are necessary under the circumstances.

·         Based on the other side’s position, one may consider various protective clauses or agreements, or think long and hard about what and what not to share, or perhaps even seek out a more compatible contract mate.

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This post is not intended to be a substitute for legal advice.  Consult a licensed Florida business law attorney for specific business law questions that you may have.