Unilateral NDAs: How to Draft and Manage Them
If you want to share confidential information—such as trade secrets and unpatented inventions—with another party, consider drafting a unilateral non-disclosure agreement (NDA). Also known as one-way NDAs, unilateral NDAs are used to prevent employees, partners, advisors, and other stakeholders from using and disclosing private information.
Read on to learn more about NDAs and how you can use contract management tools to manage them.
What is a unilateral NDA?
A unilateral NDA allows you to limit how another party can use or share your company’s confidential information. This information can be anything you want the other party to keep secret, such as business plans, trade secrets, designs, and unpatented inventions.
You will encounter unilateral NDAs any time confidential information is disclosed to potential advisors, employees, clients, suppliers, partners, advisors, or other stakeholders. For instance, a start-up company wants to raise money from investors. To prevent investors from stealing their ideas, they will require them to sign a unilateral NDA. Without such a contract, it would be difficult for the start-up to prove in court that the investors had stolen their ideas.
In the same vein, companies may require employees and contractors to sign NDAs when working on new products that haven’t been revealed to the public yet. If they don’t sign the NDA, the employees and contractors may make social media posts and videos about the new products, damaging the value of the product and reducing public interest. Companies may also use NDAs to limit employees and contractors from sharing, using, claiming products created from confidential information.
How do companies use unilateral NDAs?
Both parties will sign the NDA after they finish drafting it. Like any business contract, unilateral NDAs require someone with authority (i.e., a C-suite executive) to sign the agreement on behalf of each party.
Then, one party will disclose the confidential information and designate it as confidential. They may also summarize the information and designate the summary as confidential through a memorandum they send to the other side. The receiving party will then use the disclosed information for purposes established in the NDA.
If the receiving party is a company, they aren’t allowed to disclose the information to anyone other than the company’s officers, directors, authorized partners, and employees. The recipient is also responsible for ensuring the people they share the information with will not disclose it to unauthorized third parties.
Unilateral NDAs vs. mutual NDAs
Another type of NDA is a mutual NDA. Also known as bilateral NDAs and two-way NDAs, mutual NDAs are executed between parties engaged in a joint venture that involves sharing confidential information. Unlike unilateral NDAs, mutual NDAs allow both parties to limit how the other party will share and use their information.
Mutual NDAs are particularly common in mergers and acquisitions, corporate takeovers, and deal-making. This is because parties exchange a lot of private business information when negotiations occur.
For example, let’s say a tech company is negotiating with a chip manufacturer. They are working on a new computer and a new chip, respectively. To ensure information about these new products won’t get leaked to the public, both parties will sign an NDA to limit the each other from sharing confidential information about the products. Even if the tech company isn’t working directly with the chip manufacturer to create a new computer, the tech company may have talked about the product during one of their negotiations.
What to include in a unilateral NDA
Here’s what you should include in a unilateral NDA:
- The parties’ information: Like all contracts, a unilateral NDA needs to introduce the parties to the agreement. Use their full legal names as they appear on their official ID (i.e., passport or driver’s license). You also need to establish who the owner and the recipient are. In a unilateral NDA, the owner is the disclosing party, while the recipient is the party who receives the information.
- Confidential information: Define “confidential information.” Be as specific as possible when describing the scope of such information.
- No license: State that the owner isn’t communicating the confidential information to license it to the recipient. As such, the recipient has no ownership rights to any of the information.
- Recipient’s treatment of confidential information: Explain how the recipient will treat the confidential information and indicate how the recipient should handle electronic and hard copies of it. Remember to include language for the following:
- The recipient can only use the information for purposes approved by the owner (i.e., if the owner disclosed the information so the recipient could determine whether they should invest, the recipient can only use the information for that purpose).
- The recipient can only give the information to pre-approved individuals in its own organization (i.e., C-suite executives who need the information to decide whether the investment is worth it).
- Protective measures: Disclosing parties may also want to include special protective measures such as:
- Notification of misappropriation or unauthorized disclosure
- Security protocols for the cloud and data systems where the confidential information will be stored
- Limits on transmitting and copying the information electronically
- Requiring the information to be kept in a specific location and prohibiting the recipient from removing the information without the disclosing party’s prior written consent
- Restrictions and specifications for destroying confidential information
- Exceptions: Detail situations where a party’s disclosure of confidential information would not violate the NDA. Here are some typical examples:
- If a third party gets the same information through a different medium that’s not part of the NDA
- If the disclosing company or individual explicitly consents to disclose the information to any third party
- If the information reaches the public through no fault of the recipient
- Term: Indicate how long the recipient must keep the confidential information private (i.e., 10 years from the date of signing the NDA). Some unilateral NDAs bind a party to secrecy for a set period, while others bind a party indefinitely so the signer can never share the confidential information in the agreement with anyone.
- Penalties: State the penalties the recipient will face for violating the unilateral NDA. Penalties can be quite varied; Some NDAs stipulate damages for lost business opportunities and profits and others impose criminal charges on the violating party.
- No publicity: Establish how the recipient and the owner will keep their relationship confidential. This is particularly important for M&A deals and joint ventures since telling the public about the relationship can lower the value of a company.
- No assignment: Limit the recipient from transferring their obligations to a third party.
- All other clauses: Like other contracts, you should include clauses for jurisdiction, termination, and notices.
How to track and manage unilateral NDAs
As you can see, unilateral NDAs contain a lot of information. This makes them challenging to track and manage, particularly if you’re still storing your NDAs in hard-to-reach places like physical cabinets, USBs, hard drives, and folders.
To speed up the process of locating NDA contract data, consider getting enterprise-grade digital contract management software like Ironclad Editor. Powerful and intuitive, Ironclad has powerful tools that transform NDAs from barriers to enablers.
For example, our Data Repository lets you bring in contracts from anywhere. By gathering all of your contracts in one place, you’ll be able to:
- Locate the unilateral NDA you’re looking for
- Answer contract questions about upcoming deadlines and obligations in seconds
- Build reports
- Enable users from other departments to make use of contract data.
Ironclad also comes with Workflow Designer, a self-serve tool that anyone can use to build and manage NDA workflows. With Workflow Designer, you can easily create a unilateral NDA by uploading a template, fine-tuning approval routing workflows, and modifying contract template language.
After you’ve finished your NDA, you can use our Editor to edit, track, and comment on changes in DOCX files while staying connected to your colleagues. Use internal comments and @mentions to ask your colleagues questions and get answers in seconds. Say goodbye to saving NDAs, attaching them to emails, and waiting for your colleagues’ responses. Ironclad empowers you to accelerate negotiations and speed-contract like never before.
Many companies use unilateral NDAs to protect confidential information when working with another party. In a unilateral NDA, only one party agrees to keep the other party’s confidential information private. However, in a bilateral NDA, both parties agree to keep the other’s confidential information private.
Unilateral NDAs are less complex than bilateral NDAs, but they are still hard to track and manage, particularly if you’re dealing with thousands of active contracts at once. That’s why you get Ironclad Editor. Armed with an arsenal of top-notch tools, Ironclad has everything you need to draft, manage, and track unilateral NDAs.
Interested? Try our sandbox demo today.