According to recent reports, the hemp-derived cannabidiol (“Hemp-CBD”) market is expected to grow by 700 percent by 2020 and grow to $2.1 billion by 2020. Given this significant growth forecast, sensitive business information (also known as trade secrets) has become an incredibly valuable asset for Hemp-CBD stakeholders. Realizing value from those trade secrets requires sharing them with business partners and employees. Therefore, it isn’t surprising that in the past few months our firm has drafted numerous confidentiality agreements, also known as non-disclosure agreements (“NDA”), to protect our Hemp-CBD clients’ trade secrets. This post provides an brief overview of what an NDA is and which provisions makes it a well-drafted agreement.
WHAT IS AN NDA?
An NDA is a contract in which the person receiving the sensitive information (“Receiving Party”), usually a business partners, an employee, or a customer, agrees not to share that information with any other party without the prior written approval of the owner of this information (“Disclosing Party”).
Most states, including Oregon, have adopted a version of the Uniform Trade Secrets Act (“UTSA”). Under Oregon law, a trade secret is defined as
information, including a drawing, cost data, customer list, formula, pattern, compilation, program, device, method, technique or process that:
(a) Derives independent economic value, actual or potential, from not being generally known to the public or to other persons who can obtain economic value from its disclosure or use; and
(b) Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.”
This means that to be legally protected, business information must be valuable and its owner must take reasonable steps to keep it secret. For example, informing new employees that confidential information will be shared in the course of their employment, specifically when requiring them to execute an NDA, should prove that reasonable efforts were made.
In addition, NDAs are enforceable provided they are “fair,” meaning the NDA is not overly restrictive or unduly burdensome on the Receiving Party.
WHAT PROVISIONS SHOULD BE IN AN NDA?
Whether an NDA is needed for business or employment purposes, an effective NDA should include the following provisions:
- A clear definition of the confidential information that will be shared with the Receiving Party during the term of the agreement. Depending on the state law that governs the NDA, an overly broad definition could expose the Disclosing Party to legal actions and render the NDA unenforceable.
- The reasons for which the sensitive information is shared with the Receiving Party.
- Terms under which the sensitive information may be disclosed. Generally, confidential information may be disclosed to a third-party on a need-to-know basis, such as when required by law.
- The consequences for disclosing the confidential information, which usually include large monetary fines and a court order preventing the breaching party from continuing to disclose the protected confidential information.
- The length of time during which the Receiving Party must retain the information confidential. Ideally, the Receiving Party will be required to maintain the confidential information secret after their employment agreement terminates.
NDAs are a relatively inexpensive investment for companies given the protection they afford over valuable business information. Accordingly, any business, particularly those engaged in growing markets like Hemp-CBD, should consult with experienced business attorneys to help them prepare sound NDAs.