Do you really need an NDA?

A Nondisclosure Agreement (NDA) is often the first negotiation between a company and a university and can be a pivotal part of establishing productive relationships in research and technology transfer.  

However, when is an NDA truly needed?  Many, if not most, early discussions between university faculty and company representatives do not involve confidential information and are not specific enough to merit developing an NDA. It takes time to get the NDA in place, which can introduce delay as collaborators explore possibilities – so there is value in making sure your organization doesn’t enter into an NDA prematurely. Too, the terms may be superseded by those of an eventual research agreement or intellectual property license when the more formal relationship is established. 

When and Why Enter into an NDA?

The need to create and execute an NDA arises when engagement between representatives of a company and a university progress beyond initial conversations about the industry sector and areas of mutual interest to more targeted discussions. A key indicator is when the discussion involves sharing non-public information. “Confidential information” could be information in tangible or machine-readable or electronic form, technology, or data.  

Among the most common reasons for developing an NDA are to:

• Explore the potential for the company to fund a research project to be performed by university faculty and staff. 
• Work collaboratively to pursue research funding from a federal sponsor.
• Use or develop confidential information, technology, or data in a collaborative research project performed by researchers from both the university and the company.
• Permit one of the parties to use confidential information, technology, or data in a specific project or research program.
• Allow the parties to explore the opportunity for the company to license intellectual property such as a patentable invention, from the university.

How? Essential Elements of an Effective NDA

Regardless of the purpose, the drafters of the NDA should ensure that the description of the purpose for the exchange of confidential information is clear and specific. Similarly, the confidential information to be shared must be clearly described in the written agreement along with the authorized use for the receiving party. The purpose of the NDA together with the description of the confidential information and authorized use statement is often referred to as a limited license for use of the confidential information. 

Who is bound by an NDA?

University-industry non-disclosure agreements are agreements between entities. They are not an agreement between university employees and company employees. Officials authorized by each entity need to sign the agreements and all changes have to be documented in writing by those officials. Because universities are often large and diverse, institutions may limit the applicability of non-disclosure agreements to the individuals directly involved in the activity covered by the purpose statement. A university-wide or company-wide NDA is exceedingly rare and could be difficult to administer. While students working on a particular project may receive confidential information if needed for the work, they are not the primary contact for the university, and they are governed by university policies regarding the treatment of confidential information belonging to others.

To What and Until When Does the NDA apply?

There are a few common features of non-disclosure agreements to note. There must be a way to identify shared information that is subject to the agreement. The customary standard is for the information to be marked. Sometimes the parties can agree to create a written record of verbal disclosures. In addition to helping both parties manage confidential information exchanges, marking confidential information can help public institutions that are subject to open records laws avail themselves of exclusions for third-party confidential information. Finally, the expiration date of the non-disclosure agreement itself and the period of time the information remains confidential must be part of the written NDA – they cannot be the same! Negotiators should ensure that the individuals who will disclose and receive the information know the terms.

The Bottom Line

NDAs are important.  It is vital that all parties understand and follow through on the commitments they make when sharing confidential information.  Waiting until the need to share identifiable confidential information arises and then carefully tailoring NDAs to the actual relationship that has developed between a university and a company helps both parties meet their obligations and makes the administration of the agreement and the information exchanged more effective.