Key Areas of Concern and Analysis
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Purpose (Clause 1): Vagueness is a Risk
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Risk: The purpose is currently a placeholder:
[Insert purpose of entering into this NDA]. This is a major gap. A vague or overly broad purpose can limit your ability to use information that shouldn’t be considered confidential. It also makes it harder to argue that something falls outside the scope of the NDA. -
Suggestion: Be extremely specific about the purpose. For example: “To facilitate discussions and the exchange of information related to the potential development by [Your Company Name] of a [Specific Type of Software, e.g., CRM system, mobile application] for ABC, including the evaluation of ABC’s requirements, existing systems, and data, and the development of a proposal and statement of work.” The more detail, the better. Tie it directly to the specific project.
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Definition of Confidential Information (Clause 2): Overly Broad
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Risk: The definition is very broad, encompassing anything provided by ABC, including analyses you create that “contain or otherwise reflect” their information. This could severely restrict your ability to work on similar projects for other clients. The inclusion of “metadata, source code, object code, firmware” is standard and expected, but the “analyses, compilations, studies” part is the biggest concern.
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Suggestion:
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Narrow the “Analyses” Clause: Amend clause 2(a) to read: “…analyses, compilations, studies or other documents prepared by the receiving party and its Representatives that directly contain and are clearly marked as derived from such information.” This adds a requirement of direct derivation and marking, preventing your general industry knowledge from being captured.
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Add a “Residual Knowledge” Clause: This is crucial. Insert a new clause (e.g., 2.1) that states something like:
“Notwithstanding anything to the contrary in this Agreement, the receiving party and its Representatives shall be free to use for any purpose the residuals resulting from access to or work with the Confidential Information, provided that this right to use residuals does not represent a license under any patents or copyrights of the disclosing party. ‘Residuals’ means information in non-tangible form, which may include ideas, concepts, know-how, or techniques, that are retained in the unaided memories of the receiving party’s Representatives who have had access to the Confidential Information. A Representative’s memory is unaided if the Representative has not intentionally memorized the Confidential Information for the purpose of retaining and subsequently using or disclosing it.”
This clause protects your team’s general knowledge and skills gained during the project. It’s a standard and reasonable protection in software development.
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Exclusions (Clause 3): Generally Good, but One Addition
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Risk: The exclusions are standard and generally protect you, but there’s a subtle omission.
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Suggestion: Add a new exclusion (e.g., 3(f)): “information that is rightfully received by the receiving party from a third party without any obligation of confidentiality.” This covers situations where you get the same information from a completely independent source without any restrictions.
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Restriction in Use/Access (Clause 4): “In Connection With This Agreement” is Vague
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Risk: The phrase “in connection with this Agreement” is too vague. It needs to be tied back to the specific purpose defined in Clause 1. Also, the responsibility for Representatives’ breaches is absolute, which is standard but something to be very aware of.
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Suggestion:
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Change “in connection with this Agreement” to “solely for the Purpose as defined in Clause 1.”
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Regarding Representative breaches, ensure you have strong internal controls and confidentiality agreements with your contractors and employees. You can’t eliminate this risk, but you can mitigate it.
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No License (Clause 5): Standard and Acceptable
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Risk: Low. This clause is standard and protects ABC’s intellectual property.
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Reverse Engineering (Clause 6): Standard, but Consider Your Needs
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Risk: Generally low, unless you need to reverse engineer ABC’s existing systems to understand how to integrate your software.
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Suggestion: If integration with existing systems is part of the project, add a carve-out to Clause 6: “…, except to the extent necessary to perform the services outlined in the Statement of Work (or similar agreement) related to the Purpose, and only after providing written notice to ABC of the need for such reverse engineering.” This gives you a limited right, but with notification to ABC.
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Return/Destruction (Clause 7): Practical Considerations
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Risk: The “commercially reasonable efforts” language is good, but the retention exceptions are important. The ability to retain analyses, compilations, etc. (7(b)) is somewhat contradicted by the overly broad definition of Confidential Information in Clause 2. The automatic backup retention (7(c)) is essential.
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Suggestion:
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Ensure the changes to Clause 2 (definition of Confidential Information) are made, especially the “directly derived from and clearly marked” language. This will make 7(b) more useful.
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Consider adding a specific timeframe for retention under 7(a) (compliance purposes). For example, “…required to keep for compliance purposes…for a period not to exceed [X] years.”
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Disclosure Legally Compelled (Clause 8): Standard and Acceptable
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Risk: Low. This is a standard clause protecting both parties.
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Specific Performance (Clause 9): Standard, but Understand the Implications
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Risk: This clause allows ABC to seek an injunction (a court order stopping you from doing something) if you breach the NDA. This is a powerful remedy, so be very careful about compliance.
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Suggestion: No changes needed, but be aware of the potential consequences of a breach.
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Competitive Development (Clause 10): Crucial, but Needs Strengthening
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Risk: This clause is essential for you, but it’s weak. It only prevents you from using ABC’s Confidential Information in competitive development. Because the definition of Confidential Information is so broad, this clause offers limited protection.
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Suggestion: This clause must be read in conjunction with the strengthened definition of Confidential Information (Clause 2) and the addition of the “Residual Knowledge” clause. With those changes, this clause becomes much more effective. Without them, it’s almost useless.
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Personal Information Protection (Clause 11): Standard and Acceptable
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Risk: Low, assuming you have good data protection practices.
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Suggestion: Ensure you comply with all applicable data privacy laws (e.g., GDPR, CCPA, etc.).
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No Representations (Clause 12): Standard Disclaimer
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Risk: Low. This is a standard disclaimer of warranties regarding the accuracy of the information.
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No Future Commitment (Clause 13): Standard and Acceptable
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Risk: Low.
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Choice of Law (Clause 14): Jurisdictional Considerations
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Risk: The laws of England and Wales and the jurisdiction of the Abu Dhabi Global Market Courts apply. This is a significant issue if you are not based in that jurisdiction. You need to understand the implications of this choice of law and forum.
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Suggestion:
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Consult with legal counsel: Get advice from a lawyer familiar with English and Welsh law and the Abu Dhabi Global Market Courts.
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Consider Negotiation: Try to negotiate for a jurisdiction that is more convenient or familiar to you. This might be difficult, but it’s worth trying.
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Entire Agreement (Clause 15): Standard and Acceptable
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Risk: Low.
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Assignment (Clause 16): Standard, but Review Carefully
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Risk: Low. The ability for either party to assign to an affiliate is common.
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Term of Confidentiality (Clause 17): Long-Term Obligations
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Risk: Three years is a standard term. The indefinite protection for trade secrets and PII is also standard. The key is to ensure that the definition of “trade secret” is clear and that you have a process for identifying and protecting information that falls into this category.
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Suggestion:
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Define “Trade Secret”: Add a definition of “trade secret” to Clause 17, referencing the applicable law (likely English and Welsh law in this case). This will provide more clarity. For example: “‘Trade Secret’ shall have the meaning ascribed to it under the [relevant English and Welsh law, e.g., Trade Secrets (Enforcement, etc.) Regulations 2018].”
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Implement a Trade Secret Protection Process: Have a clear internal process for identifying, marking, and protecting information that you consider to be a trade secret.
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Severability (Clause 18): Standard and Acceptable
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Risk: Low.
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No Waiver (Clause 19): Standard and Acceptable
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Risk: Low.
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Counterparts (Clause 20): Standard and Acceptable
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Risk: Low.
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Summary of Key Recommendations (in order of importance):
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Define the Purpose (Clause 1) with extreme specificity.
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Add a “Residual Knowledge” clause (new Clause 2.1).
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Narrow the definition of Confidential Information (Clause 2), especially the “analyses” part.
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Add an exclusion for information received from third parties without confidentiality obligations (Clause 3).
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Tie the use restriction (Clause 4) to the specific Purpose.
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Consider a carve-out for reverse engineering if necessary for integration (Clause 6).
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Define “Trade Secret” (Clause 17).
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Consult with legal counsel regarding the choice of law and jurisdiction (Clause 14).
Final Steps:
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Do NOT sign this NDA in its current form.
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Provide these recommendations to your legal counsel. They will be able to draft the specific language changes needed and advise you on the best course of action.
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Negotiate with ABC. Be prepared to explain why these changes are necessary and reasonable. Most of these suggestions are standard practice in the software development industry.
By addressing these issues, you can significantly reduce your risk and ensure that the NDA protects both your interests and ABC’s. Good luck!
