Assignment Clause FAQ

It depends on what the assignment clause says. There are three common scenarios:

• Free assignability: Some NDAs (rare) allow either party to assign freely. This means they could transfer the NDA to anyone - including a competitor.
• Consent required: Most NDAs require written consent for assignment. The question is whether consent can be withheld for any reason ("sole discretion") or must be reasonable ("not unreasonably withheld").
• Anti-assignment: Some NDAs prohibit assignment entirely, though carve-outs for M&A are common.

Why this matters: You signed an NDA with a specific company. If they can transfer it to anyone, your confidential information could end up with parties you never intended to share with - potentially including competitors or entities with poor security practices.

Check your NDA for: The assignment clause is typically in the "Miscellaneous" or "General Provisions" section near the end of the agreement.

Assignment clauses can cover different things, and the distinction matters:

Assigning rights:

• The ability to enforce the NDA against the other party
• The right to receive confidential information under the agreement
• The right to sue for breach and collect damages
• Generally easier to assign - you're giving someone a benefit

Assigning obligations (delegation):

• The duty to keep information confidential
• The obligation to return or destroy materials
• Liability for any breaches
• Harder to delegate - the original party often remains liable

Key principle: Under contract law, you can usually assign rights, but delegation of duties doesn't release you from obligation unless the other party agrees. Even if you "assign" the NDA to someone else, you might still be on the hook if they breach.

Watch for: Language like "The assigning party shall be released from all obligations upon assignment" - this is what receiving parties want but disclosing parties should resist.

The consequences of violating an assignment restriction depend on the clause language:

Common consequences:

• "Null and void": The attempted assignment has no effect. The original party remains bound, and the purported assignee has no rights or obligations.
• "Material breach": Unauthorized assignment constitutes a breach, allowing the other party to terminate and potentially sue for damages.
• Specific performance: A court may order the violating party to undo the assignment.
• Damages: If the unauthorized assignment causes harm (e.g., confidential information reaches a competitor), the injured party can sue for damages.

Practical reality: By the time you discover an unauthorized assignment, the damage may already be done - confidential information has been shared with the new party. Prevention (careful assignment restrictions) is more effective than cure (litigation after the fact).

Due diligence tip: Before sharing your most sensitive information, verify the other party hasn't already assigned their rights to someone else.

This is one of the most critical assignment questions. The answer depends on acquisition structure and clause language:

Stock acquisition (most common):

• Buyer acquires the company's shares
• The company continues to exist as a legal entity
• Contracts typically continue automatically (no "assignment")
• But a "change of control" provision might still be triggered

Asset acquisition:

• Buyer purchases specific assets, including contracts
• This IS an assignment requiring consent unless exempted
• Some clauses specifically address "sale of all or substantially all assets"

Merger:

• Companies combine into one entity
• Contracts typically transfer "by operation of law"
• Some anti-assignment clauses explicitly cover mergers

Your concern: If the acquirer is your competitor, suddenly they have access to your confidential information under the NDA. This is why "competitor" carve-outs or change of control termination rights matter.

Only if your NDA includes specific provisions for this scenario. Standard clauses to look for:

Change of control termination right:

• Language: "Upon change of control, the non-affected party may terminate this Agreement upon written notice"
• Gives you the right (not obligation) to end the relationship
• Usually triggered by acquisition, merger, or majority ownership change

Competitor restriction:

• Language: "Assignment to a Competitor of the other party shall require prior written consent"
• Requires them to get your approval before any competitor takes over
• "Competitor" should be defined - either by name or by market/product description

Automatic termination:

• Language: "This Agreement shall automatically terminate upon change of control to a Competitor"
• Strongest protection - no action required from you
• But: the acquirer may still have information they received before termination

If your NDA lacks these protections: You may be stuck with a competitor having your confidential information. This is why these provisions should be negotiated upfront.

This is a common M&A planning issue. Here's what you need to know:

Review each NDA's assignment clause:

• Does it allow assignment in M&A transactions?
• Does it require consent (and from whom)?
• Is there a "change of control" provision that might trigger termination?

Common carve-out language that helps:

"Either party may assign this Agreement without consent in connection with a merger, acquisition, corporate reorganization, or sale of all or substantially all of the party's assets, provided that the assignee agrees in writing to be bound by the terms of this Agreement."

Due diligence implications:

• Buyers will want to see your NDA portfolio during due diligence
• Non-transferable NDAs may be a red flag or negotiation point
• You may need to seek consent from multiple counterparties before closing
• Some counterparties might use consent requests as leverage for concessions

Planning tip: When signing new NDAs, always negotiate M&A carve-outs. It's much easier to do this upfront than to go back to dozens of counterparties during a transaction.

A change of control provision triggers certain rights or consequences when ownership of a party changes significantly. The trigger is usually:

• Acquisition of more than 50% of voting stock
• Merger with another entity
• Sale of all or substantially all assets
• Change in control of the board of directors

Types of change of control provisions:

• Notice requirement: Just requires notification within a certain period after the change
• Consent requirement: Change of control treated as assignment requiring consent
• Termination right: The other party can terminate if they don't want to work with the new owner
• Automatic termination: Agreement ends automatically upon change of control

Who benefits from each:

• Disclosing party: Wants termination rights to protect secrets from ending up with unintended parties
• Receiving party: Wants minimal restrictions to maximize company value in a sale
• Acquirer: Wants NDAs to transfer cleanly without needing dozens of consents

This depends on how the NDA handles "affiliates" - a common source of confusion and disputes:

Typical affiliate provisions:

• Sharing permitted: "Receiving Party may share Confidential Information with its Affiliates who have a need to know..." - common and usually acceptable
• Assignment to affiliates: "Either party may assign this Agreement to an Affiliate without consent" - also common
• Affiliate liability: "The Receiving Party shall be responsible for any breach by its Affiliates" - critical protection

Why this matters:

• Large corporations have dozens or hundreds of subsidiaries
• Some affiliates may be in different countries with different data protection laws
• Affiliates might include joint ventures with competitors
• The "affiliate" definition might be broader than you expect

Protective measures:

• Require affiliates to sign the NDA or a joinder agreement
• Limit sharing to affiliates in specified jurisdictions
• Exclude joint ventures or minority-owned entities from "affiliate" definition
• Maintain a list of approved affiliates

Corporate spin-offs create unique assignment challenges:

The problem:

• The spin-off creates a new, independent company
• This is typically treated as an "assignment" even though it's your own restructuring
• The new entity wasn't a party to the original NDA
• Anti-assignment clauses may require consent

Common approaches:

• Pre-spin consent: Get consent from all NDA counterparties before the spin-off (can be time-consuming)
• Assignment to affiliate before spin: If assignment to affiliates is permitted, assign while the entity is still an affiliate
• Reorganization carve-out: Some NDAs permit assignment "in connection with a corporate reorganization"
• Tripartite agreement: Original parties and new entity sign an agreement transferring rights and obligations

Planning tip: When signing NDAs, anticipate future restructuring. Negotiate language like: "Assignment shall be permitted in connection with any spin-off, divestiture, or corporate reorganization of the assigning party's business."

Yes, absolutely. This is one of the most important protections in affiliate assignment provisions:

Why original party liability matters:

• Affiliates may be less financially stable than the parent
• Affiliates may be in jurisdictions where enforcement is difficult
• Affiliates might be dissolved or become judgment-proof
• You contracted with the parent based on their reputation and resources

Sample protective language:

"Notwithstanding any assignment to an Affiliate, the assigning party shall remain jointly and severally liable for all obligations under this Agreement, including any breach by the Affiliate."

Alternative approach:

"Assignment to an Affiliate shall only be effective if the Affiliate (a) agrees in writing to be bound by this Agreement, and (b) has net assets at least equal to [amount] or provides a guaranty from a creditworthy entity."

Receiving party pushback: They may argue that joint liability defeats the business purpose of operating through separate entities. A compromise is requiring a parent guarantee for the affiliate's obligations.

This is a standard and generally reasonable provision. Here's what it means:

"Not unreasonably withheld" standard:

• You can't refuse consent arbitrarily or for bad faith reasons
• You CAN refuse if you have legitimate business concerns
• The burden is usually on the refusing party to justify their refusal
• Courts will look at whether refusal makes business sense

Reasonable grounds for refusal:

• Proposed assignee is your direct competitor
• Proposed assignee has poor security practices or history of data breaches
• Proposed assignee is in a jurisdiction where enforcement would be difficult
• Proposed assignee is financially unstable

Likely unreasonable refusals:

• Refusal without any stated reason
• Refusal based on personal dislike of the assignee
• Using consent as leverage for unrelated concessions
• Delay tactics without substantive objections

Best practice: Accept this standard, but define what constitutes "reasonable" grounds upfront (e.g., "including but not limited to assignment to a Competitor or to an entity with materially inferior financial condition").

Notice requirements vary by clause, but here are common patterns:

Prior consent required (most common):

• Must request consent before assignment
• Assignment is invalid until consent is granted
• Consent should be in writing to avoid disputes

Notice without consent (for permitted assignments):

• Common for M&A or affiliate assignments
• Usually "within 30 days" after assignment
• Some require notice "promptly" (undefined but implies soon)
• Include: assignee identity, effective date, contact information

No notice required:

• Sometimes for affiliate assignments
• Risky for the other party - they might not know who holds the contract
• Push back on this if you're the disclosing party

What happens if you fail to give required notice:

• Breach of the NDA (potential damages, termination rights)
• Assignment might be voidable at the other party's option
• May lose the right to enforce the NDA in the assignee's name

Generally yes, but it depends on the consent standard in the clause:

If consent is "in sole discretion":

• You can condition consent on almost anything
• Fees, modified terms, additional security measures
• May refuse for any reason or no reason

If consent is "not unreasonably withheld":

• Pure "consent fees" with no justification may be unreasonable
• However, reasonable conditions are usually permissible
• Examples: requiring assignee to sign the NDA, provide financial guaranty, agree to enhanced security measures

What's typically acceptable:

• Requiring assignee to execute an assumption agreement
• Reimbursement of your legal fees for reviewing the assignment
• Updated representations and warranties from the assignee
• Enhanced security requirements if assignee has weaker controls

What might be problematic:

• Demanding a large cash payment unrelated to costs
• Requiring renegotiation of unrelated agreement terms
• Unreasonable delays in responding to consent requests

This is a breach situation. Your options depend on timing and circumstances:

If you discover it early (before significant harm):

• Send immediate written notice that the assignment is void
• Demand return of all confidential information from the purported assignee
• Consider terminating the NDA for material breach
• Document everything for potential litigation

If confidential information has been shared with the assignee:

• Demand that the assignee sign a confidentiality agreement directly with you
• Seek injunctive relief if there's ongoing risk of disclosure
• Preserve evidence of damages for potential claims

Practical considerations:

• Do you still want to do business with the original party?
• Is the assignee actually a problem, or just technically unauthorized?
• What's the cost of litigation versus accepting the situation with additional protections?

Potential resolution: Negotiate a three-party agreement where the assignee becomes an authorized party, potentially with enhanced protections or additional consideration to you.