Non-Circumvention FAQ

A non-circumvention clause prevents you from bypassing the party who introduced you to a business opportunity or contact. Specifically, it typically prohibits:

• Direct dealing: Contacting or transacting directly with introduced parties, cutting out the introducer
• Solicitation: Actively pursuing business relationships with contacts you met through the other party
• Information exploitation: Using knowledge of the other party's network to pursue opportunities without them
• Deal hijacking: Taking over a transaction that the other party initiated or facilitated

Example: Company A introduces you to their supplier in China. Without non-circumvention, you could go directly to that supplier for your own orders, cutting out Company A. With non-circumvention, you're prohibited from doing so.

The key concern: Someone uses your relationships, contacts, or deal-finding work to pursue opportunities without compensating you or including you in the transaction.

Good question. Non-circumvention is often bundled into NDAs, but it's conceptually different:

Reasons it gets included:

• Convenience: Parties sign one document covering multiple concerns
• Leverage: It's easier to slip into a "standard NDA" than negotiate separately
• Relationship dynamics: Introductions often happen during confidential discussions
• Legal uncertainty: Some parties want contractual protection for introductions that might not be independently enforceable

Why this is problematic:

• Non-circumvention restricts your business activities, not just information handling
• It may have nothing to do with confidential information
• It can survive even if no confidential information is ever exchanged
• Courts may scrutinize it as a restraint on trade

What to do: If you see non-circumvention in an NDA, ask whether it's really necessary. If the relationship is truly about confidential information, non-circumvention might not be needed. If introductions are the real value, perhaps a separate referral or finder's fee agreement is more appropriate.

Non-circumvention makes sense in specific relationship types where introductions have independent economic value:

Appropriate contexts:

• Broker/finder relationships: A party whose value is connecting buyers and sellers
• Referral agreements: Formal arrangements for lead generation and compensation
• Joint venture formation: Protecting each party's contribution of relationships
• Investment banking: Protecting relationships developed during deal processes
• International trade: Protecting introductions to foreign suppliers or distributors

Less appropriate contexts:

• Simple mutual NDAs for exploring a potential partnership
• NDAs for receiving a product demo or evaluation
• Employment-related NDAs
• NDAs where no introductions are contemplated

Red flag: If someone insists on non-circumvention but can't explain what specific introductions or relationships are being protected, they may be overreaching.

If your business model relies on introductions, you need contractual protection. Here's how to structure it effectively:

Essential elements:

• Clear definition: Identify specifically who is protected - named contacts, defined categories, or described relationships
• Reasonable duration: 2-5 years is typical. Shorter periods may not provide adequate protection; longer may be unenforceable.
• Compensation mechanism: Define what happens if circumvention occurs - finder's fee, commission structure, damages
• Verification process: How will you know if they transacted? Audit rights, notification requirements

Sample structure:

"For a period of three (3) years, the Receiving Party shall not directly or indirectly contact or transact with any party listed on Exhibit A (Protected Contacts) without the prior written consent of the Disclosing Party. If any transaction occurs in violation of this provision, the Receiving Party shall pay to the Disclosing Party a fee equal to ten percent (10%) of the transaction value."

Enforcement reality: Even with strong language, enforcement is difficult. Practical relationship management and ongoing value provision are better protections than litigation threats.

Pre-existing relationships are the most common defense to non-circumvention claims. Address this proactively:

Protective drafting:

• Require upfront disclosure: "Within 10 days of receiving Protected Contact information, Receiving Party shall identify in writing any contacts with whom it had a pre-existing business relationship"
• Define "pre-existing": "Pre-existing relationship means a documented business transaction within the prior 24 months"
• Shift burden of proof: "In any dispute, the Receiving Party shall bear the burden of proving the pre-existing relationship through contemporaneous documentation"

Documentation best practices:

• Create a signed list of Protected Contacts at the outset
• Have them acknowledge each introduction in writing
• Document the date and circumstances of each introduction
• Keep records of their pre-introduction contact disclosures

Reality check: If they genuinely had a prior relationship, restricting that relationship is both unfair and potentially unenforceable. Focus your protection on clearly new introductions.

Unsolicited inbound contact is a gray area that depends heavily on clause language and circumstances:

Arguments against circumvention:

• You didn't "solicit" - they came to you
• The clause typically prohibits "contacting" or "soliciting" - not responding
• You can't prevent third parties from exercising their own business judgment
• The introducing party doesn't own the third party's decisions

Arguments for circumvention:

• Sophisticated parties sometimes engineer "inbound" contact to bypass restrictions
• The contact might be responding to subtle signals or prior positioning
• The spirit of non-circumvention is to protect the introduction regardless of who initiates
• Some clauses cover "engaging in business" regardless of who initiates

Best practice: If you receive unsolicited contact from a protected party and want to pursue it, notify the introducing party. Offer to work with them or negotiate modified terms. This demonstrates good faith and may preserve the relationship.

Clause drafting tip: If you're the receiving party, negotiate for explicit "unsolicited contact" exceptions. If you're the introducing party, cover "engaging in any transaction" regardless of initiation.

Damages for circumvention can be substantial if properly documented, but proving them is often challenging:

Types of recoverable damages:

• Lost commissions/fees: What you would have earned had they not bypassed you
• Lost profits: If you would have participated in the deal, your share of transaction profits
• Unjust enrichment: The benefit they received by using your introduction without compensation
• Consequential damages: Lost future business, damaged relationships (if clause permits)

Liquidated damages approach:

Include a pre-defined formula: "In the event of circumvention, the Receiving Party shall pay the Introducing Party a fee equal to fifteen percent (15%) of the gross transaction value." This avoids proving actual damages but must be a reasonable estimate, not a penalty.

Proof challenges:

• How do you know about transactions that happened without you?
• How do you prove what your role/compensation would have been?
• How do you establish the transaction value?

Include audit rights: "The Introducing Party shall have the right, upon reasonable notice, to audit the Receiving Party's records to verify compliance with this Section."

Overly broad non-circumvention clauses may not be enforceable as unreasonable restraints on trade:

Signs of an overbroad clause:

• "Any contacts, customers, suppliers, or business opportunities" - too vague
• "Any person or entity that becomes known" - no meaningful limitation
• Perpetual or very long duration (10+ years)
• Covers people you already know or could independently discover
• No geographic or industry limitation

Enforceability factors courts consider:

• Is there a legitimate business interest being protected?
• Is the restriction reasonable in scope and duration?
• Does it impose undue hardship on the restricted party?
• Is it harmful to the public interest?

Negotiation approaches:

• Require specific identification of protected contacts (not open-ended categories)
• Limit duration to 2 years or less
• Carve out pre-existing relationships and publicly available contacts
• Exclude contacts from your normal course of business

Bottom line: Courts are increasingly skeptical of broad non-circumvention provisions. But don't rely on unenforceability - negotiate reasonable terms upfront.

This is where properly drafted carve-outs become essential:

Normal business carve-outs to negotiate:

• General advertising: "This Section shall not restrict general marketing or advertising directed to the public at large"
• Responding to RFPs: "Responding to publicly issued requests for proposals shall not constitute circumvention"
• Trade shows/conferences: "Contacts made at industry events open to the public are excluded"
• Inbound inquiries: "Responding to unsolicited inquiries from Protected Contacts is permitted"

Industry-specific considerations:

• If you both serve the same industry, their "contacts" may be your existing or natural customers
• Public companies, government agencies, and major enterprises can't really be "owned"
• Limiting to truly unique, relationship-specific introductions is more reasonable

Sample protective language:

"Nothing in this Section shall restrict the Receiving Party from (a) engaging in general business operations, (b) pursuing opportunities independently identified through public sources, (c) responding to unsolicited inquiries, or (d) continuing pre-existing business relationships."

Duration varies widely, but there are reasonable ranges:

Common duration periods:

• 1-2 years: Appropriate for initial business development discussions, limited introductions
• 2-3 years: Common for significant business relationships, joint venture explorations
• 3-5 years: For major introductions involving substantial investments or long sales cycles
• 5+ years: Unusual and may face enforceability challenges
• Perpetual: Generally disfavored; courts skeptical of permanent restraints

Factors that justify longer periods:

• Very high-value relationships (major supplier, key customer)
• Industries with long transaction cycles
• Ongoing involvement or compensation relationship
• Mutual, balanced restrictions

Negotiation tip: If they insist on a long duration, negotiate for it to run from the LAST introduction, not from agreement signing. This prevents old, stale restrictions from limiting future business.

Expiration trigger: Consider language like "This restriction shall expire upon the earlier of (a) 3 years from the last introduction, or (b) termination of the underlying business relationship."

Yes, non-circumvention typically survives the end of the underlying relationship - but there are nuances:

Standard survival:

• Most clauses explicitly survive termination of the NDA or business relationship
• The protection is for PAST introductions, so relationship status shouldn't matter
• Duration is usually measured from introduction date, not relationship end

Possible defenses if relationship failed:

• Material breach: If THEY materially breached the agreement, you may be excused from further performance
• Failure of consideration: If they never actually provided introductions or value
• Mutual termination: Some termination agreements release all future obligations
• Abandonment: If they've clearly abandoned the relationship and protected contacts

Best practice: When relationships end, address non-circumvention explicitly. A mutual release of non-circumvention obligations - or clear confirmation they survive - avoids later disputes.

Worst practice: Assuming restrictions don't apply because you're no longer doing business together. The clause probably says otherwise.

Blanket refusal isn't always practical, but you should understand when to push back:

When to push for deletion:

• The NDA is for a simple product evaluation or demo
• No introductions are actually planned or contemplated
• You're both sophisticated companies with overlapping markets
• The restriction would significantly impact your normal business operations

When you might accept (with modifications):

• They're genuinely providing valuable, unique introductions
• The restriction is narrow, specific, and time-limited
• It's mutual - you both get protection
• There's fair compensation for any circumvention (not just penalties)

Alternative proposals:

• "Let's remove non-circumvention and address introductions in a separate referral agreement if/when they happen"
• "We'll agree not to solicit, but we won't agree to broad non-contact provisions"
• "We'll accept this for named specific contacts, not open-ended categories"
• "Let's limit this to 12 months and revisit if our relationship develops"

If you accept non-circumvention, these protections are critical:

Essential carve-outs:

• Pre-existing relationships: "This Section shall not apply to any party with whom the Receiving Party had a documented business relationship prior to the date of introduction"
• Publicly available contacts: "Contacts publicly available through ordinary business means are excluded"
• Unsolicited contacts: "Responding to unsolicited inquiries from Protected Contacts shall not constitute circumvention"
• General marketing: "General advertising and marketing not specifically directed at Protected Contacts is permitted"

Important limitations:

• Identified contacts only: "Restrictions apply only to contacts specifically identified in writing as Protected Contacts"
• Reasonable duration: "This restriction shall expire 2 years from the date of the relevant introduction"
• Notice and cure: "Before claiming breach, the Introducing Party shall provide 30 days written notice and opportunity to cure"
• Proof requirements: "The Introducing Party shall bear the burden of proving the introduction and the circumvention"

If introductions have real value, consider a separate agreement tailored to that purpose:

Referral/Finder's Fee Agreement:

• Specifically addresses compensation for introductions
• Clear fee structure (percentage of transaction, flat fee, ongoing commission)
• Defined scope of covered introductions
• Term and payment mechanics

Advantages over NDA non-circumvention:

• More focused and enforceable
• Clearly defines the economic deal
• Less likely to conflict with normal business
• Industry-standard forms exist

Joint Venture or Partnership Terms:

• For deeper collaboration, formalize the relationship
• Define each party's contributions and compensation
• Include exclusivity where appropriate
• Clear exit provisions if the relationship ends

Best approach: Keep the NDA focused on confidentiality. If introductions have value, negotiate that value proposition separately with appropriate documentation.