Are Your Agreement Drafts Sending The Wrong Signals?
You understand the benefits of exchanging ideas with external parties. In fact, several times, you’ve found a strong value proposition for working together with a well-reputed, innovative, partner. Your team (and even your lawyer) has been on their best manners. Yet somehow, your success ratio of signed agreements to proposed drafts isn’t great. Before you chalk it up to bad luck, have you considered the unspoken messages your agreements are sending?
The goal is simple. If the disclosed information is non-public, you want to ensure the recipient will keep the information secret, and use it only for the purpose intended. Call it a secrecy agreement, nondisclosure agreement (NDA), or confidentiality agreement (CDA), but in any case, the agreement addresses a well-trodden path of concerns. In fact, a recipient’s obligations and exclusions are typical across most industries. From this perspective, it seems like an easy opportunity to appear fair, cooperative, and reasonable.
However, your company’s first draft can speak volumes to the initiated about how you do business. Grab your template secrecy agreement and ask yourself, is it:
1) Reciprocal? You understand business activities require give and take. You espouse finding a win-win. But if you propose a one-way secrecy obligation in your favor, it’s hard to take your team at their word. In one-way secrecy agreements, the unprotected party has every incentive to say as little as possible. On the other hand, reciprocal agreements merely delineate between Disclosers and Recipients. This implies that your company is comfortable living by the agreement in either position, which exudes fairness.
2) Targeted? Failing to define the information, or limit potential uses, is subject to several negative interpretations. Is it an attempt at obtaining blanket coverage (below)? Is there a flaw in your information management policy? Good policy requires obtaining approval to disclose/receive information. Accordingly, the broader an agreement, the more concerned a potential partner should be regarding who is actively accountable for compliance with the agreement.
3) Well-organized? A well-organized document implies trustworthiness. Does your secrecy agreement look like it’s the product of careful deliberation and best practices? Vague drafting can imply you’re careless about your obligations. Besides, if it is a time-riddled patchwork, the agreement may address the same issues in different places. If so, there’s a risk to both parties that it could become internally inconsistent during negotiation (e.g., modified, but only in only one of the locations). Also, the length of obligations should be readily identifiable.
4) Partisan? Calling your company by name, and your partner, “Company,” might avoid clerical work or redrafting from agreement to agreement, but it does nothing to make a partner feel special or unique. Similarly, listing the governing law as your state’s sends a partisan message that doesn’t accomplish much (at least as between two US companies).
5) Realistic? Some ideas seem good in theory, but are problematic in practice:
a) Perpetual secrecy/duration – besides inadvertently triggering a long-term contract that may require Board approval, perpetual life raises serious issues over time. For example, should you create a process to exempt all documents associated with the agreement from standard document retention? How about adding procedures for merger or sale that may occur a hundred years from now?
b) Blanket coverage – for delegation of authority reasons, having no explicit limitation on type or topic of information exchanged under the agreement should require very high levels of approval. If that’s not discouraging, consider that the agreement will be “leveraged” to cover disclosures that were not envisioned at the time of negotiation. Lastly, realize there’s a risk you may receive unwanted extraneous information that you will be legally obligated to safeguard. This may be too risky for those worried about information “contamination.”
c) Allocation of future IP – trying to jump to a joint development clause from the first formal interaction is a red flag akin to making suggestions about what you should name your first child on a first date. This type of clause indicates you’re trying to sneak something in while the review level is comparatively low or that you have unrealistic expectations.
Lastly, do you forward drafts in pdf? Perhaps it’s not what you say, but how you say it. Sending an un-editable draft says you’re not interested in finding a middle ground. You don’t have time to address unique concerns or situations. Information management is not something you take seriously enough to devote resources toward. In an age where intangibles like information are more highly valued than ever before, those are implications you can’t afford to make.