October 25, 2018

Survey: Transactional NDA Terms

For most deals, everything starts with a non-disclosure agreement. In order to provide insight into market practice when it comes to NDAs, the Business Law Center surveyed the terms of 143 NDAs filed on Edgar & dated between 1/1/14 and 3/31/18. Here are some of the findings:

– The most common agreement term was 24 months. One agreement remained in force for 120 months (the longest term), and one for only three. Twenty agreements did not specify a termination date, implying a perpetual term. Twenty-three others provided for, or implied, perpetual survival of the NDA’s confidentiality provisions.

– Delaware law governed the largest portion (62%) of these agreements, an additional 22% were written under New York law. Unilateral agreements were more likely than mutual agreements to be governed by New York law.

– Reflecting the fallout from the Delaware Chancery & Supreme Court decisions in Vulcan v. Martin-Marietta, “use provisions” have evolved significantly over the period surveyed. 2014’s use provisions convey a general sense of how confidential information should be used, but like the language at issue in Marietta/Vulcan, fail to give precise direction. In contrast, 2018’s use provisions are more uniform and more specific. In six of 2018’s nine NDAs confidential information is to be used “solely for the purpose of” or “solely in connection with” evaluation of a proposed transaction. These six agreements also enumerate the activities that constitute evaluation.

– 83% of the agreements surveyed had a non-solicitation clause preventing the recipient of confidential information from poaching the other party’s personnel. The duration of the non-solicitation period varied from six to 36 months, with twelve months being the most common period.

– 80% of the agreements surveyed included standstill provisions. The length of the standstill period varied considerably, from 45 days to three years. The most common term was twelve months.

– 64% of agreements with standstills included a “don’t ask, don’t waive” clause, but only 23% did not include a “carve-out” allowing the party bound by the standstill to privately communicate alternative proposals or, more commonly, by a “fall-away” automatically terminating the standstill in the event of a competing offer. Some deals had both provisions.

The survey also addresses other common NDA provisions, and reviews the differences between the terms of unilateral & mutual NDAs.

John Jenkins