Mauricio Uribe, partner at Knobbe Martens, discusses the effects that NDAs have on medtech inventions, the potential barriers they can create for start-ups and other important information to know, particularly in the USA.
What are the circumstances when a medtech start-up should consider using an NDA?
In our experience, NDAs should be considered for several different internal and external use scenarios encountered by a medtech start-up. In external scenarios, NDAs are key contracts that should be considered whenever a medtech start-up will have any type of discussion or interaction with external companies (e.g., finance companies, vendor, partners, contractors, etc.). NDAs typically mark the beginning of third-party interactions and will often define the behaviours and goals of the parties. Additionally, NDAs are a key tool to establish confidentiality procedures between the parties that are essential for the preservation of trade secrets. In internal use scenarios, NDAs can help a start-up define its own internal framework for exchanging information (both incoming and outgoing). For example, NDAs can define what a start-up considers to be confidential/proprietary information and the way that is disclosed to other parties. NDAs can further define how a start-up receives confidential/proprietary information and maintains its confidential nature. The definition and subsequent adherence to such procedure may be key in the future for potential disputes, such as trade secret misappropriation allegations.
Will a standard NDA work for all these scenarios?
Many companies have adopted standard language or forms for NDAs. Having some type of standardised language for NDAs can provide efficiencies and consistency that has great benefits. There is nothing incorrect with this approach if there is an understanding that a standard NDA should be the starting point for negotiation/discussion and may not always be the final result. We find that the nature of the interaction between parties can vary sufficiently, and that different language may be necessary for different scenarios. Language that may be preferred for a particular interaction may give rise to challenges or unexpected outcomes for a different interaction. A well thought-out and specific NDA will most likely yield the best results.
Are there terms or clauses that are more important?
Each term and clause in an NDA should be carefully reviewed. Even some of the most innocuous terms/clauses can have a meaningful impact. Nonetheless, in our experience, the definition of the scope of the work or the trade secret typically seems to have the greatest impact on most, if not all, of the other terms/clauses in an NDA.
Is there a common NDA for all the states in the United States?
NDAs are contracts that will be interpreted according to the laws of the state in which they are signed and/or the state that the parties agree will govern the language of the contract. While there is a lot of consistency in the laws of each state, care should be given regarding compliance with individual applicable state laws.
Do both parties have to sign an NDA?
Generally, only the parties that have some form of obligation under an NDA are required to sign the NDA. Accordingly, one important point early in discussions is to clearly define each party’s proposed obligations under the NDA. Not only will this establish which entities need to be signatories to the NDA, but it will also serve to clearly identify what actions/scenarios need to be addressed in the NDA.
Is there a standard term for an NDA?
There is no standard or required term for an NDA. At a minimum, the initial term (and associated renewal terms) should be sufficient to cover the anticipated timeframe for the parties’ interactions. A shorter term/duration can be beneficial because it allows the parties to revisit key terms and considerations, especially when circumstances can be volatile or rapidly changing. On the other hand, a longer term may be helpful to avoid situations in which interactions unintentionally continue past the term of an NDA.
Is there one clause/term that is the most difficult?
In our experience, residual clauses/feedback clauses are very important to consider including in an NDA. But they can also be some of the most challenging to define and negotiate. Generally, residual and feedback clauses govern the behaviour of parties after they have received information. For example, a residual clause can allow a receiving party to utilise residual knowledge gained from the information exchange and remain compliant with the terms of an NDA. A feedback clause can govern use rights for suggestions or improvements provided by the other party. It can be tricky to negotiate the terms of residual clauses and feedback clauses that will be acceptable to all parties and to negotiate mutually agreeable processes and workflows to ensure adherence.
Is there any big picture advice you would give regarding NDAs?
I always like to say that the best-case scenario for an NDA is that it is never required to be enforced. The hidden value of an NDA is the opportunity to clearly establish upfront the parties’ expectations with respect to their relationship with each other, the acceptable usage of their respective information by each other, and a structure for implementing these expectations. Compliance with the NDA can bring great value to both parties.
