Investor Concerns About Breadth of a Nondisclosure Agreement

Our startup has been seeking funding and one particular investor has been cautious to sign our NDA. We have amended the contract to make terms more agreeable (incl. term of only 12 weeks, etc), but he is still pushing back.

His concern is that our company/one of our other investors might claim him responsible for someone ELSE'S breach of contract and thus sue him. Or, that we might sue him if someone else (an outsider) develops our idea in the same time span.

The contract exclusions already protect him from information already in the public domain, as well as info that becomes public through no fault of his own. I have also offered to redefine "confidential information" to include his involvement with the NDA as well, to protect his privacy. I don't know how else I can make the contract more appealing to him.. are there any provisions that deal with this situation?

What does your legal counsel say?

We are using a family friend who is new to the field but eager to help us. He suggested something like this:

"Disclosing Party agrees to indemnify and hold harmless Receiving Party from any breach of confidentiality by any third party who is not a Party to this Agreement but is a Party to a separate Confidentiality Agreement with Disclosing Party."

Do you think it fits? I have seen no legal precedence for this type of clause but otherwise it seems clear to me.

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Quoting kirkland87

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Our startup has been seeking funding and one particular investor has been cautious to sign our NDA. We have amended the contract to make terms more agreeable (incl. term of only 12 weeks, etc), but he is still pushing back.

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If the person is an experienced investor, then it's more likely that his objection is founded.

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Quoting kirkland87

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We are using a family friend who is new to the field but eager to help us. He suggested something like this:

"Disclosing Party agrees to indemnify and hold harmless Receiving Party from any breach of confidentiality by any third party who is not a Party to this Agreement but is a Party to a separate Confidentiality Agreement with Disclosing Party."

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An indemnification / hold harmless provision relating to a third party does nothing to protect the investor from being sued by your company, or from having to pay his costs or any judgment that results in the event that the third party is unable to cover those costs.

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Quoting Mr. Knowitall

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If the person is an experienced investor, then it's more likely that his objection is founded.

An indemnification / hold harmless provision relating to a third party does nothing to protect the investor from being sued by your company, or from having to pay his costs or any judgment that results in the event that the third party is unable to cover those costs.

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He is inexperienced, but that aside, how do you recommend we accommodate his request in this scenario? I think the quote meant to say that he will not be held liable for any breach of confidentiality by any third party, etc etc... is that wording more precise?

I.e. "Disclosing Party agrees to not hold Receiving Party liable for any breach of confidentiality by any third party who is not a Party to this Agreement but is a Party to a separate Confidentiality Agreement with Disclosing Party."

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He is also afraid my company/investors might sue him if some other party with no connections to us (say, on the other side of the world) develops the same idea at the same time as us. This, however, would be included under the exclusions from Confidential Information ("information that may be in the public domain, or may become part of the public domain through no part of the Receiving Party"), would it not?

One possibility would be to offer to pay for an hour of time with a lawyer of his choice, up to a reasonable limit, for him to review and discuss the contract.