NDA Usual Duration
If in the course of the business one needs to transfer information that requires confidentiality, a non-disclosure agreement is a proper tool to guarantee the safety in the exchange. Among all important clauses that should contain in the contract, the term and duration of the agreement are one of the elements that must be carefully drafted.
Generally, a non-disclosure agreement can last from one year until unlimited period of time. That depends on different factors, namely the nature of the information exchanged, its importance for each party’s business, the expectations of the parties as to how long the information must be kept secret, among others. Although there are no particular requirements on how long an NDA should last, in practice it is more common to see duration clauses of 2, 3 and 5 years.
Below find some considerations to have in mind when drafting and negotiating the clause in question:
Term and Duration
Is it important to mention that an NDA can have the same or separate term and duration. “Term” can be used both to mean the length of the relationship between the parties and the duration of confidentiality of. When the duty of confidentiality ends at the same moment as the end of the relationship between the parties, it is common to draft just one clause using the word “term” for both situations. Example:
“This agreement and the confidentiality commitment shall be effective from ______________ and shall remain in effect for a period of 3 (three) years.”
In other situations, the disclosing party could find more convenient to keep the information confidential for a period after the end of the relationship. In those cases, it is important to differ the term and duration of the contract, being “term” related to the length of the party’s relationship and “duration” referring to the duty of confidentiality. An example of a clause containing different term and duration can be, as follows:
“This agreement shall terminate in 5 (five) years from the date hereof and the duty of confidentiality shall remain in effect for 5 (five) years after the termination date.”
Trade Secrets and Confidential Information
Another important element to check at the moment of drafting and negotiating the term and duration of your agreement is the nature of the information, that can be trade secrets or confidential information in general.
In the first case, considering the essentiality of trade secrets for a business, according to the European Commission, they can last indefinitely in most jurisdictions, as long as the conditions for the information to be considered as a trade secret are fulfilled. This is the scenario, as an example, in regions and countries as the EU, South America, the United States and China. Consequently, in case of exchanging information considered as a trade secret, it is possible – and advisable – to set an unlimited duration of the confidentiality duty in the NDA.
On the other hand, in case of confidential information that is not a trade secret, it is more appropriate to establish a fixed duration, that can vary according to the needs of the companies and the content of the information. In the German Federal Court of Justice, for instance, there are cases involving agreements with confidentiality clauses (in this case, a know-how contract) with a duration of 20 years. However, one must be cautious when it comes to setting an unlimited duration in confidentiality agreements, since it can be perceived as abusive by the courts. In Augusta Medical Complex, Inc. v. Blue Cross (Kansas, United States), for example, the Court expressively stated their distaste for contracts with unlimited duration. In the same sense, the Superior Court of Brazil has also stated that an NDA must have a time limit on the duration of the confidentiality in order to have a minimum of credibility.
In conclusion, to set a realistic duration for your NDA, consideration should be given to what type of information is required to be confidential and what are the specific interests and needs of the parties. The duration of a contract may vary according to many factors arising from the singularities of each business. However, in an overall analysis, apart from cases where trade secrets are involved, one should attempt to avoid perpetual duration of the confidentiality and to set a reasonable time limit on the term and duration clauses.
Note: This Article is neither intended nor should be understood as legal advice. Please consult your lawyer before proceeding on any elements covered by this article.
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The Difference Between Trade Secrets And Confidential Information An important element to check in the moment of drafting and negotiating an NDA or agreements that