Understanding NDA Negotiation Made Possible by AI

Non-Disclosure Agreements (NDAs) can help companies protect their intellectual property and proprietary processes, but only if negotiated correctly. Unfortunately, since NDAs are straightforward agreements, corporate legal departments often rely on templates or forms that lack the necessary provisions for complete protection. Artificial intelligence (AI) provides an option for ensuring that a corporation’s preferred positions are automatically raised and that all required standards are met during the NDA negotiation.

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Leveraging AI To Eliminate NDA Pitfalls

While it is acceptable to start with an NDA template, a forward-thinking legal team will customize the agreement to organization-specific needs. Artificial intelligence can provide concise NDA language while helping to eliminate the many pitfalls that can emerge when reviewing and negotiating the agreements. AI-powered contract negotiation that leverages natural language processing, machine learning, and company-specific data can offer:

Enforced playbook standards
Ambiguity resolution
Accelerated negotiations
Most organizations have a set of controls or a playbook for governing negotiations and acceptable contractual terms. Attorneys may not adhere to it, or they may not have the time to compare it to every clause of a contract. AI can automate the enforcement of playbook directives so that it consistently applies to every arrangement.  No one intends to create an ambiguous contract. Terms and phrases that seem clear to an expert may be utterly mystifying for a layperson. AI contract analysis can review these terms and provisions, locate ambiguity, and provide suggestions to resolve this language.  Negotiations account for a significant portion of contract lifecycle management. AI contract review can highlight target areas for negotiations, allowing the attorney to focus on the highest priority clauses. 
Automated revisions
Rapid contract turnaround 
Improved resource allocation
Concise contractual language often requires copious revisions and reviews. AI-enabled technology accelerates the review process by applying terms used in previously successful agreements as a guide to enhance the process.  One of the most significant benefits of AI in contract lifecycle management is its ability to help deals close faster. Only minutes after submitting a contract for review, the legal department receives a completed, redlined agreement which they can use to continue negotiations and close deals.  It could take days for an attorney to thoroughly review a potential NDA. AI removes the burden of painstaking review from these attorneys and allows them to focus on other strategic areas of concern.  

By automating the contract review and negotiation process, leading-edge contract platforms can help corporate legal departments solve the problem of protracted negotiations of NDAs due to prolonged back-and-forth revision requests.

Initially, the legal department simply submits sample agreements to develop a contract database. A leading-edge contract negotiation platform like LexCheck can accomplish this with as few as 24 training samples. Once the AI has been trained, legal staff can email or upload contracts for AI review. Within minutes, a fully-reviewed and marked-up contract will be returned—a contract that consistently follows your department’s best practices and successful past negotiations to reliably protect proprietary information.

While there may be hundreds of suggestions on understanding NDA negotiation, the most efficient and effective option can be found in next-generation implementations of AI in legal tech. AI utilizes a legal department’s in-house information such as completed contracts and playbooks to ensure the creation of more robust and secure NDAs.

The Basic Components of a Non-Disclosure Agreement

NDAs help companies protect confidential assets from employees or contractors. They can also provide protection when presenting new ideas to potential investors or buyers. NDAs can even help when dealing with vendors who may need to access private information when completing tasks. Regardless of the purpose, anyone interested in understanding NDA negotiation should review the standard components.

  • Parties: This essential provision includes the individuals disclosing the information and the parties receiving it. 
  • Definition: A clear explanation of the type of information protected is necessary for an executable NDA. 
  • Scope: This covers the use of confidential information. 
  • Exclusions: Exclusions include anything too unrealistic or overly burdensome to keep confidential, like information already publicly known. 
  • Term: Typically, the term establishes a period when the NDA remains active.
  • Penalties/Damages: This sets the consequences for failing to adhere to the obligations of the NDA. 
  • Separations: A separations clause ensures that if one part of the contract is invalid, the remaining enforceable parts persist unaffected. 

Aside from these basic provisions, a party disclosing confidential information to a third party needs to consider the specific type of NDA they need based on the information disclosed and the interested parties.

Choosing the Right Type of NDA

Circumstances will determine the particular type of NDA required along with accompanying proprietary information agreements. There are two basic versions: unilateral and mutual.

Unilateral ›
Mutual ›

The name, one-way NDA, reflects the way the information flows. One party discloses the data; the counterparty receives it. While these agreements are useful for a wide range of purposes, unilateral NDAs typically occur between employers and employees. In fact, in the US alone, nearly one-third of the workforce is bound by an NDA of some type. Common issues to be found with unilateral NDAs include:

  • Contract of adhesion:  As these contracts are often duplicated, used for many different individuals, and occur between an expert and a layperson, they may be considered adhesion contracts. 
  • Arbitrary terms: Overly complex language obfuscates the agreement and can result in a layperson consenting to terms they do not understand. 
  • Unenforceable clauses: It is possible to create clauses in an NDA that are not enforceable in certain jurisdictions. Without an accurate separations clause, this could put the entire document at risk.  

The mutual NDA involves an exchange of information between two parties. This is very common in partnership or vendor agreements where the businesses need access to information to complete their jobs. In some cases, companies may enter a mutual NDA proactively, like when they are examining financials to consider a merger. Mutual NDAs can become complicated, though, because of all the parties involved. Standard mistakes include:

  • Unclear definitions: The specific type of information to be protected requires a clear and well-established explanation. Otherwise, the parties will not know what they are supposed to protect. 
  • Poorly defined scope: An overly broad scope can cause delayed partnership agreements, stalled negotiations, and create unenforceable contracts. 
  • Nondisclosed parties: A large business can have many smaller subsidiaries and segments that must be disclosed to be a party to a contract. However, it's easy to overlook these different entities. 

Additionally, another type of NDA—the multilateral NDA—is designed to cover more than two entities. Essentially, the multilateral NDA is a "catch-all" agreement that eliminates the need for separate mutual and unilateral Non-Disclosure Agreements for each party. This complex NDA is challenging to draft and can require extensive negotiations.

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LexCheck provides an industry-leading platform for reviewing and negotiating Non-Disclosure Agreements using AI. To learn more, contact us at sales@lexcheck.com or request a demo.
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