Bad intent: Setting the tone in Non-Disclosure Agreements

Bad intent: Setting the tone in Non-Disclosure Agreements

Recently I was reviewing a contract from one of my clients. The contract itself was a straightforward non-disclosure agreement (NDA). In this case, the NDA was pretty relevant. If you’ve read some of my other posts, you’ll know that I think a lot of NDAs are worthless because there is no real confidential information at issue.

In this case, my client’s customer was going to reveal information about an invention that was in a pre-patent stage. The desire to protect that information is understandable and certainly worthy of the agreement. My client happens to be in the business of, among other things, in assisting and managing clinical trials for medical devices.

When you’re dealing with a contract, one of the most important things that should be done is to examine what could go wrong in the relationship between the parties. In the context of a pre-contract non-disclosure agreement, what could go wrong is an unauthorized disclosure. That is the whole purpose of a NDA: to address an eventuality. In this case, the unauthorized disclosure is a potential event. While an unauthorized disclosure is a very expensive event, it is also has a low probability of occurring.

In the case of my client, their entire business model is based on trust that other people are placing in them to manage clinical trials. Clinical trials involve confidential information ranging from patient information to intellectual property that needs to be protected. It would be negligent at best and stupid at worst for my client to not take confidentiality seriously. Thus, they have protections in place such as data breach prevention and compartmentalization of information that will attempt to prevent disclosure of confidential information.

In reviewing this particular NDA, which was vastly overwritten to begin with, there is an important concept that came out: the tone of the contract. The tone was “we are not assuming that this might happen, we are assuming that this event will happen.” This is a very different mindset. By assuming that the disclosure would take place, the NDA had provisions that expressed a punitive tone. When a contract drafter takes the position that a negative event is going to happen or that it is likely to happen, you end up with a contract that is suspicious in nature. This sets a very negative tone for the business relationship.

While it is important for a contract drafter to consider the things that can go wrong, it is also important the probability of what can go wrong. In a NDA, the only concern that people have is the disclosure of confidential information. But in other contracts, there may be a plethora of things that can go wrong. You have to determine some kind of probability of these events. You need to think: what events need to be specifically addressed in a contract and what terms can be addressed through general dispute resolution clauses?

I am what I consider to be an optimist: I believe that we can figure things out and that there is good intent between contract parties from the start. Otherwise, no one would be in business for very long. When you’re drafting a contract, do not assume a negative intent and do not assume a negative outcome of your relationship.

Assume a watchful optimism. For me, that comes through in the tone of the contract.