Watch Your Mouth!

NDA Specifics

A legally binding NDA must include the following: consideration, description and procedure. For an agreement between two parties to be binding, both sides must benefit; this is called consideration. Otherwise, the agreement could be considered coercive. The consideration might say something like, "I, the inventor of ABC, am disclosing my idea to XYZ Co. for possible funding or commercialization."

It's also critical to define what's "confidential." If it's not made clear, the other parties could later claim they didn't know what they had been told was to be held in confidence. To simply say the entire meeting should be considered confidential isn't reasonable either. The easiest solution is to state that everything that's to be kept confidential will be deemed as such. Then you need to make sure everything you show the other party has the word "confidential" on it.

How the other party will use the confidential information is identified in the procedure section. A phrase such as "This information is being shared to procure a manufacturing bid" is a typical way of expressing this idea.

If you don't want your information copied or distributed, the procedure section is the area in which to make this known. And it's also a good idea to specify what's to be done with the materials once they've been used for the purpose specified. Requesting that all confidential items be destroyed six months after the date of the NDA is one option.

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This article was originally published in the August 1999 print edition of Entrepreneur with the headline: Watch Your Mouth!.

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