Addresses compliance with export control laws, data privacy regulations, industry-specific requirements, and other legal obligations when handling confidential information.
High Complexity
What This Clause Does
A regulatory compliance clause in an NDA addresses the legal requirements that apply to the handling, storage, transfer, and protection of confidential information. This includes export control laws (ITAR, EAR), data privacy regulations (GDPR, CCPA, HIPAA), industry-specific requirements (financial services, healthcare, defense), and anti-corruption laws. The clause allocates responsibility for compliance and establishes procedures for handling regulated information.
Why This Clause Matters
Prevents Legal Violations: Sharing certain confidential information across borders or with certain parties may violate export control laws, resulting in severe civil and criminal penalties.
Ensures Data Privacy Compliance: If confidential information includes personal data, the parties must comply with applicable privacy laws, which vary significantly by jurisdiction.
Addresses Industry Requirements: Regulated industries (healthcare, financial services, defense) have specific rules about information handling that must be incorporated into the NDA.
Allocates Compliance Responsibility: Clear allocation prevents disputes about which party is responsible for compliance failures and their consequences.
Protects Against Government Action: Proper compliance provisions demonstrate good-faith efforts to comply with law, which may mitigate penalties if violations occur.
Legal Context
Multiple overlapping regulatory regimes may apply to confidential information depending on its nature, the parties' locations, and how it will be used. U.S. export controls (ITAR for defense articles, EAR for dual-use items) restrict sharing technical data with foreign persons or entities. Data privacy laws like GDPR (EU), CCPA (California), and sector-specific laws like HIPAA (healthcare) impose requirements on personal data handling. Industry regulations from bodies like FINRA (financial services) or FDA (pharmaceuticals) add additional requirements. Violations can result in criminal prosecution, civil fines, debarment from government contracts, and private litigation. The NDA must address which laws apply and how the parties will ensure compliance.
Compliance with Law
Each party shall comply with all applicable laws, regulations, and governmental orders in connection with its performance under this Agreement, including without limitation export control laws and data privacy regulations. Neither party shall export or re-export any Confidential Information in violation of applicable export control laws.
Basic Version: General compliance statement suitable for low-risk situations where confidential information is not heavily regulated or does not cross borders.
Regulatory Compliance
1. General Compliance. Each party shall comply with all applicable laws, regulations, and governmental orders in connection with its receipt, use, storage, and protection of Confidential Information, including without limitation export control laws, data privacy laws, anti-corruption laws, and industry-specific regulations.
2. Export Controls. The parties acknowledge that Confidential Information may be subject to export control laws and regulations, including the U.S. Export Administration Regulations (EAR) and International Traffic in Arms Regulations (ITAR).
(a) The Receiving Party shall not export, re-export, or transfer any Confidential Information to any country, entity, or person prohibited by applicable export laws without first obtaining all required government authorizations.
(b) The Receiving Party shall not disclose any Confidential Information to any foreign person or entity without the Disclosing Party's prior written consent.
(c) Each party shall notify the other if any Confidential Information is classified or controlled under ITAR, EAR, or other export control regimes.
3. Data Privacy. To the extent Confidential Information includes personal data:
(a) The Receiving Party shall process such data only for the Permitted Purpose and in compliance with applicable data privacy laws, including GDPR, CCPA, and other applicable privacy regulations.
(b) The Receiving Party shall implement appropriate technical and organizational measures to protect personal data against unauthorized access, loss, or disclosure.
(c) The Receiving Party shall not transfer personal data to any jurisdiction that does not provide adequate data protection without implementing appropriate safeguards.
4. Industry-Specific Requirements. Each party shall notify the other if any Confidential Information is subject to industry-specific regulations (such as HIPAA, GLBA, or PCI-DSS), and the Receiving Party shall handle such information in compliance with those regulations.
5. Compliance Cooperation. Each party shall cooperate with reasonable requests from the other party to demonstrate compliance with applicable laws and regulations, including responding to regulatory inquiries and providing compliance certifications.
Standard Version: Comprehensive compliance framework addressing export controls, data privacy, and industry regulations. Appropriate for most business relationships involving sensitive information.
Comprehensive Regulatory Compliance and Certification
1. Absolute Compliance Obligation. The Receiving Party unconditionally warrants and represents that it shall comply with all applicable laws, regulations, directives, orders, and governmental requirements of any jurisdiction in connection with its receipt, handling, storage, processing, and use of any Confidential Information.
2. Export Control Compliance.
(a) The Receiving Party represents that it is not located in, organized under the laws of, or owned or controlled by persons located in any country subject to U.S. economic sanctions (currently Cuba, Iran, North Korea, Syria, and the Crimea region of Ukraine).
(b) The Receiving Party represents that it is not listed on any U.S. government restricted party list, including the Denied Persons List, Entity List, Unverified List, or Specially Designated Nationals List.
(c) The Receiving Party shall not permit any access to Confidential Information by any foreign person, as defined in 22 CFR 120.16, without the Disclosing Party's prior written consent and all required government authorizations.
(d) The Receiving Party shall maintain records of all access to Confidential Information by foreign persons for a minimum of five (5) years and make such records available for inspection upon request.
(e) The Receiving Party shall immediately notify the Disclosing Party of any actual or suspected violation of export control laws.
3. Data Privacy Compliance.
(a) The Receiving Party shall comply with all applicable data privacy laws worldwide, including but not limited to GDPR, CCPA, LGPD, PIPA, and all other national, state, and local privacy laws.
(b) The Receiving Party shall execute any data processing agreement, standard contractual clauses, or other documentation required by the Disclosing Party to ensure lawful data transfers.
(c) The Receiving Party shall notify the Disclosing Party within twenty-four (24) hours of any data breach or security incident affecting Confidential Information.
(d) The Receiving Party shall indemnify and hold the Disclosing Party harmless from any fines, penalties, claims, or damages arising from the Receiving Party's failure to comply with data privacy laws.
4. Industry Compliance.
(a) The Receiving Party represents that it has all licenses, certifications, and approvals required to receive and handle Confidential Information, including FedRAMP authorization, SOC 2 certification, and HIPAA compliance where applicable.
(b) The Receiving Party shall maintain compliance with all applicable industry standards and regulations throughout the term of this Agreement.
5. Compliance Audits. The Disclosing Party may, upon reasonable notice, audit the Receiving Party's compliance with this section. The Receiving Party shall cooperate fully with any such audit and provide access to relevant records, systems, and personnel.
6. Annual Certification. The Receiving Party shall provide annual written certification of its compliance with this section, signed by an officer of the Receiving Party.
7. Compliance Costs. The Receiving Party shall bear all costs of compliance with applicable laws and regulations, including costs of obtaining necessary licenses, implementing security measures, and responding to audits or regulatory inquiries.
Warning - One-Sided: This version imposes extensive compliance burdens and representations on the Receiving Party. Requirements for specific certifications (FedRAMP, SOC 2), unlimited audit rights, and broad indemnification may be impractical or unacceptable. Receiving Parties should negotiate for reasonable certification requirements, limited audit scope, and mutual compliance obligations.
1
Identify Applicable Regulations Early: Before signing, understand what regulations apply to the confidential information you will receive. Ask the Disclosing Party to identify any controlled technical data, personal data, or industry-regulated information.
2
Make Compliance Obligations Mutual: Both parties should have compliance obligations. If you are disclosing your own confidential information, ensure the other party must also comply with applicable laws, not just you.
3
Negotiate Reasonable Certification Requirements: Resist requirements to obtain certifications (SOC 2, FedRAMP, ISO 27001) that you do not already have unless the deal justifies the investment. These certifications are expensive and time-consuming to obtain.
4
Limit Indemnification Scope: If indemnification for compliance failures is required, limit it to violations caused by the indemnifying party's negligence or willful misconduct, not strict liability for any regulatory issue.
5
Address Data Processing Separately: If significant personal data is involved, negotiate a separate Data Processing Agreement (DPA) rather than trying to address all GDPR requirements in the NDA itself.
6
Negotiate Practical Breach Notification: Twenty-four hour breach notification requirements may be impractical. Negotiate for reasonable timeframes (72 hours) aligned with applicable law requirements.
Representations About Sanctions Status
Be cautious about representations that you are not owned or controlled by persons in sanctioned countries. These representations require careful due diligence on your own ownership structure, and false statements have serious legal consequences.
Unidentified Controlled Information
If the Disclosing Party cannot or will not identify which confidential information is subject to export controls or other regulations, you cannot adequately assess your compliance obligations and risk.
Blanket Compliance Representations
Representations that you comply with "all laws worldwide" are impossible to make accurately. Push for compliance obligations limited to laws actually applicable to the contemplated information sharing.
One-Sided Indemnification
Indemnification clauses making you solely responsible for all regulatory violations, even those caused by the Disclosing Party's failure to identify regulated information, create unfair risk allocation.
Unrealistic Certification Requirements
Requirements to obtain or maintain specific certifications (FedRAMP, CMMC, etc.) that you do not currently have may be impractical. These requirements can cost hundreds of thousands of dollars and take years to achieve.
Regulatory compliance is complex and penalties can be severe. Consider consulting with attorneys specialized in export controls or data privacy before agreeing to compliance provisions.