How to Draft a Reciprocal Nondisclosure Agreement

Setting Up the Agreement

Search for forms or templates. There are many websites that offer templates you can use to draft your reciprocal nondisclosure agreement yourself without hiring an attorney. Download several samples so you can choose the language that best suits your needs. Some templates are configured to conform to the law of specific states. You typically have to pay a fee to access these. You may, however, be able to find samples online of reciprocal nondisclosure agreements drafted in your state for different companies or individuals. You can seek out state-specific language in these. Don't restrict your search solely to "reciprocal nondisclosure agreement." The same agreement also is known as a mutual nondisclosure agreement, and "nondisclosure agreement" may be abbreviated as "NDA."

Identify the parties to the agreement. One of the first things your agreement should do is name you and the other party with whom you're entering the agreement. Include legal company names where applicable and basic contact information. In addition to the main contracting parties, make sure you list everyone who potentially will have access to the information. Otherwise they may not be covered by the agreement's restrictions. You can include categories of employees if the names of the people who will be involved in the project is uncertain or subject to change. For example, you may identify the other party to the agreement as "Sunrise Technology, Inc., its engineers and designers." If you include categories of employees, keep in mind that the person who signs the contract must be someone, such as a corporate officer, who has the authority to bind these people. Typically you'll want to provide a short name for ease of reference to the parties throughout the rest of the agreement, such as "Company" or "Inventor." Make sure the generic names aren't so similar that they could lead to confusion, and that they can't apply to both parties. For example, you shouldn't refer to one party as "Corporation" if both parties are incorporated businesses. Keep in mind that in some parts of the agreement you'll be referring to roles either party could hold since your agreement is mutual. For example, if you refer to "Receiving Party," it's clear that you mean either party when receiving confidential information from the other – not one party in particular.

Establish the purpose of the agreement. In addition to the title, the first paragraphs of the agreement state why you and the other party are entering this agreement and what you intend it to accomplish. In legal circles, these clauses typically are referred to as "whereas" clauses because they begin with that word. They don't necessarily contain any duties or requirements of the agreement itself, they just explain what led up to the agreement being made and what it's intended to do. For example, you might write "Whereas Inventor has created a mobile app, Company has agreed to develop and distribute that app." You would go on to explain that Company would need to access Inventor's intellectual property to create a plan for development and distribution, while Inventor would necessarily be exposed to Company's trade secrets through the process of building that plan.

Describe the information covered by the agreement. Here, you want to provide broad categories of information each party is bringing to the table that they want the other party to keep confidential. This confidential information isn't limited strictly to intellectual property and can include any information that might be exchanged by the parties. You want to set the boundaries of confidential information covered by the agreement without revealing the confidential information itself. At the same time, your categories should be descriptive, rather than so broad that they conceivably could include anything. For example, you might state that "all client lists" are considered confidential, but you don't have to disclose the content of those lists in the agreement itself, or attach the lists to the agreement.

List any information excluded from confidentiality. You don't have to list items specifically, but include general categories of information that don't have to be protected as confidential. Since most of these categories are created by law, you typically can copy the language from a sample or template created for your state. Some of these exclusions are standard in all states. For example, any information that was already public knowledge can never be considered confidential information. Additionally, information the receiving party learns from someone else, or of which they had prior knowledge, can't be covered by the agreement. Even information that uses or includes secret information or processes cannot be covered under a nondisclosure agreement if it was something the other party learned before the agreement was signed.

Establishing the Terms

Describe the duties of each party in receiving confidential information. Your reciprocal nondisclosure agreement will limit the ways each receiving party can use the confidential information provided, and discuss the standards for keeping and protecting confidential information. Generally, any confidential information received can only be used in the context of the specific project for which the two parties are contracting. If there's a project contract or other document that specifies your relationship with the other party, you may want to attach it to your reciprocal nondisclosure agreement and incorporate it by reference. If both parties have known policies for handling confidential information, this clause will be relatively simple, because you can state that a receiving party must keep any information disclosed to them in the same way they would keep their own confidential information. If written policies do not exist, however, you must spell out the measures which must be taken. Generally, you want the receiving party to limit access to the information as well as take basic precautions to keep the information secure. This might include measures such as only discussing confidential information through encrypted emails. The receiver also has the duty not to breach confidentiality by disclosing the information, or induce others to do so. This statement typically is required by state law.

Include responsibilities related to the delivery of confidential information. While the bulk of the duties fall to the party receiving confidential information, your agreement also may describe the responsibilities of the party providing confidential information, such as a duty to identify information as confidential. You also may want to spell out the requirement that the party providing confidential information must follow the same procedures for protecting information when delivering it to the other party. For example, the delivering party shouldn't just leave a message on voicemail that includes information covered by the agreement if they aren't certain who would get that message. These lapses can destroy the confidentiality of the information and negate its coverage under the agreement, so both parties have a responsibility to adhere to the methods described for protecting confidential information, regardless of whether they are on the giving or the receiving end.

Specify the duration of the agreement. Most reciprocal nondisclosure agreements in the U.S. last five years, although some may only last two or three years depending on the relationship between the parties and the reasons they are exchanging confidential information. While the date the agreement ends doesn't have to be a specific date, you should provide a specific date for when the agreement starts so it's clear when the agreement will take effect and how long it will be enforceable. You may have the nondisclosure period begin on the date the agreement is signed. Since there will be a date next to each signature, this provides your specific start date. The agreement typically ends a set number of years after the start date. However, it also may end when a certain event happens that negates the need for continued nondisclosure. For example, if the agreement involves developing and marketing a new product, the nondisclosure agreement may end once the product is delivered to store shelves.

Discuss the penalties for violation of the agreement. Damages as a result of the disclosure of confidential information can be difficult to quantify. For this reason, many reciprocal nondisclosure agreements specify the amount of money a breach is worth. The more difficult something is to value, the more important it is for you to identify a dollar figure in your agreement. Otherwise, in the event of a breach the amount of damages to which you're entitled will be left to a judge's discretion. If you're including a valuation for the purposes of a liquidated damages clause, which is a clause that specifies the amount to which the harmed party is entitled if the contract is breached, consider the uniqueness of the information being disclosed, and how damaging it would be if that information became known to competitors. Some states allow you to sue for additional penalties, such as double or triple damages, if the disclosure was intentional rather than accidental.

Ensuring Enforceability

Include miscellaneous provisions. Every reciprocal nondisclosure agreement includes a number of clauses that don't necessarily fit in any other section of the agreement, but are necessary for the agreement to be valid and legally binding. These clauses often are referred to as "boilerplate" because they are included in all contracts, regardless of the type of agreement. Since they're used so frequently, you typically can copy these causes from another contract or a form. However, read the language carefully and make sure you understand it before you insert it verbatim into your agreement. A key miscellaneous provision describes the choice of law and choice of forum – which state's law should be used to interpret the contract, and where a lawsuit can be brought for breach of contract. If you've evaluated your draft agreement under your state's law, choose it as the law that applies.

Review your state's law. Before you finalize and sign your agreement, you must check your state's law to ensure that it includes everything legally required, and also avoids any language that is unenforceable in your state. Each state typically has a law regarding nondisclosure agreements or confidentiality agreements. That law lists the duties and responsibilities that each party has under the law. If your state doesn't have a specific statute dealing with nondisclosure agreements, you'll have to look through case law – decisions by state court judges interpreting other contracts – to determine what's allowed in your state. If you have any questions or problems, consider having an attorney look over your agreement before it's finalized. An attorney typically will review a prepared agreement for a relatively low flat fee.

Sign the agreement. Both parties must sign the agreement before it will be considered valid and legally binding. In some situations you may want to have the agreement formally signed in the presence of a notary public. Once the agreement is signed, make two copies – one for you and one for the other party – and retain the originals in a neutral safe place. You also may want to sign two copies of the agreement, so both you and the other party have originals.