The Confidential Disclosure Agreement (“CDA”) is widely used in the Life Sciences Sector, and provides protection for a key asset – a party’s confidential information and trade secrets. This post does not propose to go through the various possible provisions of a CDA or their negotiation, but instead sets out five practical considerations to take into account when preparing and implementing a CDA.
1. Absolute protection?
Each CDA will provide for certain legal remedies in the event that the other party breaches the agreement, however once an important piece of confidential information is made publicly available it can be difficult or impossible for a party to obtain adequate compensation. It is stating the obvious to note that the best way to keep confidential information confidential is not to disclose it, however this is sometimes forgotten where a CDA is in place. On a case by case basis, it is important to consider, prior to disclosure, whether a particular piece of information really needs to be disclosed for a given commercial deal.
It will often be the case that all the information to be disclosed under a CDA, does not need to be disclosed as soon as the CDA is signed. For instance, information to be disclosed as part of a due diligence exercise can sometimes be disclosed in pre-agreed tranches. If a party is able to disclose information in tranches, rather than all at once, this can reduce exposure where a potential commercial deal falls through. If staggered disclosure is used a party can take some comfort in the fact that they disclosed the minimum amount of confidential information possible, even if the commercial deal in question has failed.
3. Who needs to know?
Make sure everyone involved in the deal understands how the CDA works, what can be disclosed, what will be protected and what their duties are with respect to the other party’s confidential information. Consider putting in place procedures to ensure that, for each commercial relationship/deal, all the members of a given team are made aware of, and understand, the key terms of the applicable CDA.
4. One size doesn’t fit all
While companies and law firms will often have pro forma CDAs on file, it is important to remember that a CDA will always need to be tailored to fit the situation in which it is being used. As an example, the definition of “confidential information” and the duration of the duty of confidentiality can vary significantly between industries and different commercial deals. You may have a very good standard CDA to hand, but if it is not appropriately tailored for your specific commercial deal, it may not provide the protection you need.
5. Does labelling matter?
CDAs will sometimes prescribe that information and documents need to be marked as “confidential”, or that orally disclosed information needs to be stated to be “confidential”, in order for it to be covered by the terms of the CDA. It is easy for parties to assume that, once a CDA is in place, they can disclose information to the other party and such information will be covered by the CDA. The potential pitfall is that a member of a commercial team, who is unfamiliar with the terms of the relevant CDA, will disclose sensitive information without marking or noting it as such. This point highlights how important it is to ensure that all the members of a commercial team are aware of the key provisions of the CDA that they are operating under for a given commercial deal or relationship.