Introduction
Non-Disclosure Agreements (NDAs) are critical legal tools designed to protect confidential information. When such information must be shared with third parties, both the disclosing and receiving parties face unique challenges and responsibilities. This practice note explores best practices to govern third-party disclosures under NDAs, ensuring that confidentiality is maintained and risks are minimized.
Best Practices for Third-Party Disclosures under NDAs
For the Disclosing Party
- Advance Written Consent: Require the receiving party to obtain written approval before sharing information with any third party.
- Define Authorized Recipients: Specify categories (e.g., affiliates, contractors, advisors) and restrict disclosure only to those necessary for the transaction.
- Flow-Down Obligations: Mandate that third parties sign NDAs with terms at least as strict as the original agreement.
- Disclosure Approval Process: Implement a formal process where the receiving party submits names, roles, and justification for each third-party disclosure.
- Audit & Monitoring: Retain rights to audit compliance or request disclosure logs to track who accessed the information.
- Limit Scope: Clearly define what information may be disclosed and prohibit blanket sharing of all confidential materials.
For the Receiving Party
- Need-to-Know Principle: Share information only with third parties who genuinely require access for the agreed purpose.
- Third-Party NDAs: Ensure each third party signs a confidentiality agreement with the receiving party mirroring the original NDA’s obligations.
- Record-Keeping: Maintain detailed records of what was disclosed, to whom, and when, to demonstrate compliance.
- Security Controls: Use secure channels (encrypted emails, restricted platforms) to transmit confidential information.
- Notification Duties: Promptly inform the disclosing party of any intended third-party disclosure and provide evidence of safeguards.
- Return/Destruction Protocols: Ensure third parties comply with return or destruction obligations once the purpose is fulfilled.
Comparison Table
| Aspect | Disclosing Party Best Practice | Receiving Party Best Practice |
| Approval | Require written consent before disclosure | Seek approval before involving third parties |
| Authorized Recipients | Define categories (affiliates, contractors) | Limit access to need-to-know individuals |
| Confidentiality Terms | Impose flow-down obligations | Secure third-party NDAs with equivalent terms |
| Monitoring | Retain audit rights, request logs | Keep detailed disclosure records |
| Security | Specify secure handling standards | Use encryption & controlled access |
| Termination | Require destruction/return protocols | Ensure third parties comply with exit obligations |
Risks & Mitigation
- Risk of Leakage: Third parties may mishandle information → Mitigation: enforce strict NDAs and monitoring.
- Ambiguity in Scope: Vague NDA terms can cause disputes → Mitigation: define disclosure boundaries clearly.
- Regulatory Exposure: In industries like finance or healthcare, improper disclosure can trigger penalties → Mitigation: align NDA terms with sector-specific compliance rules.
Bottom Line
Both parties must treat third-party disclosures as exceptional events requiring heightened safeguards. The disclosing party should control and monitor, while the receiving party should implement strict contractual and operational protections. This dual approach minimizes risk and ensures compliance with the NDA’s intent.
References and Further Information
- https://claimistry.com/nda-and-third-party-disclosures/
- https://pulseofpatents.com/disclosure-of-confidential-information-to-third-parties/
- https://www.howtocontract.com/blog/enhanced-nda-protections
Disclaimer
This practice note is provided for informational purposes only and does not constitute legal advice. Parties should consult with qualified legal counsel to address specific circumstances and ensure compliance with applicable laws and contractual obligations.