Non-Disclosure Agreements in Dental Transactions
In almost every dental practice sale and purchase transaction the buyer and seller need to share certain confidential information to evaluate the merits of and negotiate the terms of the potential deal (such as financial information, material contracts and customer information). The path to providing information safely is making sure the other party is bound to respect the confidential nature of the information and not use such information in a way that causes harm to the disclosing party.
Using a Non-Disclosure Agreement is a common way to protect your company’s sensitive information when it is shared with another party. These agreements are also known as “Confidentiality Agreements” or, as it will be referred to here, an “NDA”. Unfortunately, no document is going to guarantee that an unethical person won’t use shared confidential information in a nefarious manner, however, an NDA will certainly reduce the risk of a potential buyer disclosing sensitive information about your business or using that information in some competitive manner. If they do, then at a minimum you as the seller have a legal cause of action against them and most sophisticated buyers, and even competitors, won’t take that risk.
While there are many details of an NDA that bear scrutiny, our focus in this post is determining exactly what is considered confidential information.
What is Considered Confidential?
The definition of “Confidential Information” in the context of an NDA is generally described in very broad terms and can vary from one NDA to the next. There is of course a natural divergence of interests between buyers and sellers in defining Confidential Information, as sellers want as broad a definition as possible to protect their business and buyers want to narrow the definition. A compromise that most buyers and seller’s reach is a very broad definition of Confidential Information with certain exceptions, typically including: (1) any information that is already known to the public at the time that it is communicated to the potential buyer, (2) information that becomes publicly known after the seller discloses it to the potential buyer (other than through the fault of the potential buyer or its representatives) or (3) information that is required to be disclosed by law or a court of competent jurisdiction.
So what exactly is considered confidential? Here are some practical examples of information and documentation that would typically be protected under an NDA:
·Financial and statistical data
·Computer programs and other software
·Sales, customer and client information
·Business methodologies
·Patentable and unpatentable inventions, discoveries, know-how, works of authorship and trade secrets
·Techniques, strategies, plans and tactics
·Samples, test results and other test data
·Prototypes, drawings, computations, processes and data
·Information related to the current, future and proposed products and services of the company, including any research, experimental work, development, design details, specifications, samples, designs and models
·Employee information
In addition to protecting the confidential information of a business, an NDA should also prohibit a potential buyer from disclosing information about the potential transaction. In particular, the buyer should not be permitted to disclose to third parties any of the terms, conditions or other facts related to the negotiations between the parties. The NDA should also provide that a buyer is only permitted to use the seller’s confidential information for purposes of evaluating the potential transaction and disclosure should be limited only to such buyer’s advisors.
A sophisticated buyer will understand the need to execute an NDA that prevents the buyer from using or disclosing the seller’s confidential information. This confidential information is a very valuable asset of the seller’s business, and, while the buyer needs to evaluate such information, it is critical that this information is not disclosed by the buyer to third parties or used by the buyer for any purpose other than evaluating the seller’s business in connection with a potential transaction.
The following is a sample clause defining “Confidential Information” in an NDA:
As used in this Agreement, the term "Confidential Information" means and includes any and all information, techniques, plans, designs, costs, pricing, finances, research and development activities, Supplier specifications, supplier lists, business opportunities, personnel, and/or data disclosed by a party (the "Disclosing Party") to the other party (the "Receiving Party") before, on, or after the date hereof which relates in any manner, directly or indirectly, to the Disclosing Party and/or its customers, suppliers and Customers, whether such information is disclosed in writing, verbally, electronically, or otherwise, and which information the Disclosing Party maintains as confidential. Notwithstanding the foregoing, information and/or data shall not be considered Confidential Information if such information and/or data is: (i) established by the Receiving Party to have been known by it at the time of receipt, (ii) or becomes a part of the public domain through no direct or indirect act or omission of the Receiving Party, or (iii) received by the Receiving Party from a third party without similar restrictions, (iv) is independently developed by the Receiving Party without using any Confidential Information of the Disclosing Party, or (v) is approved for release by the Disclosing Party in writing and is released consistent with such approval.
If you need assistance preparing an NDA, or have questions about purchasing or selling a business, the attorneys at Grogan Hesse & Uditsky, P.C. are here to help. Visit us at www.ghulaw.com for more information.
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