Receiving Party Obligations

💡 Plain English Explanation

The receiving party obligations clause is the heart of any NDA. It defines exactly what the party receiving confidential information must do (and must not do) to protect that information. This clause typically covers:

• Standard of care: How carefully must the receiving party protect the information? Common standards include "reasonable care," "same care as own information," or "highest degree of care."
• Use restrictions: The receiving party can only use confidential information for the stated purpose (e.g., evaluating a potential business transaction).
• Non-disclosure: The fundamental promise not to share confidential information with unauthorized third parties.
• Security measures: Specific technical and administrative safeguards that must be implemented.
• Personnel management: Requirements to limit access to employees with a "need to know" and ensure they are bound by confidentiality obligations.

⚠ Why It Matters

For the Disclosing Party: This clause defines the minimum level of protection your confidential information will receive. Weak obligations mean weak protection. You want specific, enforceable requirements that give you recourse if something goes wrong.

For the Receiving Party: These obligations define what you must do and, critically, what happens if you fail. Overly broad or stringent obligations can expose you to significant liability even for minor, inadvertent disclosures. You need obligations you can actually meet.

The Balance: The best receiving party obligations clauses provide meaningful protection without imposing impossible standards. They should be specific enough to be enforceable but flexible enough to account for the realities of modern business operations.

🚩 Risk Factors

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  "Highest degree of care" standard - This is essentially strict liability. Even with robust security measures, any breach could result in liability regardless of fault.
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  Undefined security requirements - Vague requirements like "appropriate safeguards" create uncertainty about compliance and may lead to disputes.
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  Responsibility for third-party breaches - Clauses making you responsible for breaches by contractors, vendors, or even hackers significantly expand your exposure.
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  No materiality threshold - Without limits on what constitutes a breach, even minor technical violations could trigger liability.
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  Audit and inspection rights - Rights for the disclosing party to audit your security practices can be disruptive and reveal your own confidential information.

📄 Clause Versions

OBLIGATIONS OF RECEIVING PARTY

1. Standard of Care. The Receiving Party shall protect Confidential Information using the same degree of care it uses to protect its own confidential information of similar nature and importance, but in no event less than reasonable care.

2. Use Restriction. The Receiving Party shall use Confidential Information solely for the Purpose set forth in this Agreement and for no other purpose whatsoever.

3. Non-Disclosure. The Receiving Party shall not disclose Confidential Information to any third party except as expressly permitted by this Agreement.

4. Limited Access. The Receiving Party shall limit access to Confidential Information to those of its employees, officers, directors, contractors, and professional advisors (collectively, "Representatives") who:
   (a) have a legitimate need to know such information for the Purpose; and
   (b) are bound by confidentiality obligations no less protective than those contained herein.

5. Security Measures. The Receiving Party shall implement and maintain reasonable administrative, technical, and physical safeguards designed to:
   (a) protect the confidentiality, integrity, and availability of Confidential Information;
   (b) protect against unauthorized access, use, or disclosure; and
   (c) ensure the proper disposal of Confidential Information when no longer needed.

6. Responsibility for Representatives. The Receiving Party shall be responsible for any breach of this Agreement by its Representatives and shall ensure their compliance with the terms hereof.

7. Notification. The Receiving Party shall promptly notify the Disclosing Party upon discovery of any unauthorized access to, use of, or disclosure of Confidential Information.

OBLIGATIONS OF RECEIVING PARTY

1. Highest Standard of Care. The Receiving Party shall protect Confidential Information with the highest degree of care and shall take all measures necessary to prevent unauthorized disclosure, including measures beyond those the Receiving Party uses for its own confidential information.

2. Absolute Use Restriction. The Receiving Party shall use Confidential Information solely and exclusively for the Purpose. Any use of Confidential Information for competitive purposes, reverse engineering, or any purpose other than the Purpose shall constitute a material breach.

3. Strict Non-Disclosure. The Receiving Party shall hold Confidential Information in strict confidence and shall not disclose, publish, or otherwise reveal any Confidential Information to any third party without the prior written consent of the Disclosing Party.

4. Controlled Access. The Receiving Party shall:
   (a) Limit access to Confidential Information to the minimum number of personnel strictly necessary;
   (b) Maintain a written log of all individuals who access Confidential Information;
   (c) Require all such individuals to execute individual confidentiality agreements;
   (d) Conduct background checks on personnel with access to highly sensitive information.

5. Mandatory Security Measures. The Receiving Party shall implement and maintain, at minimum:
   (a) Encryption of all Confidential Information at rest (AES-256 or equivalent) and in transit (TLS 1.2 or higher);
   (b) Multi-factor authentication for all systems containing Confidential Information;
   (c) Access logging and monitoring with retention of logs for at least two (2) years;
   (d) Annual security awareness training for all personnel with access;
   (e) Incident response procedures and regular security assessments.

6. Strict Liability for Representatives. The Receiving Party shall be strictly liable for any breach of this Agreement by its Representatives, affiliates, or any person to whom it has disclosed Confidential Information, regardless of whether such disclosure was authorized.

7. Immediate Notification. The Receiving Party shall notify the Disclosing Party in writing within twenty-four (24) hours of discovering any actual or suspected unauthorized access, use, or disclosure.

8. Cooperation and Remediation. Upon any breach, the Receiving Party shall:
   (a) Cooperate fully with the Disclosing Party's investigation;
   (b) Take all steps necessary to mitigate the breach;
   (c) Bear all costs of notification, remediation, and response.

9. Audit Rights. The Receiving Party shall, upon reasonable notice, permit the Disclosing Party or its designated auditor to inspect the Receiving Party's security measures and compliance with this Agreement.

OBLIGATIONS OF RECEIVING PARTY

1. Reasonable Care Standard. The Receiving Party shall use reasonable care, consistent with its standard information security practices, to protect Confidential Information from unauthorized disclosure.

2. Use Restriction. The Receiving Party shall use Confidential Information for the Purpose and for purposes reasonably related thereto.

3. Non-Disclosure. The Receiving Party shall not knowingly disclose Confidential Information to unauthorized third parties.

4. Access Management. The Receiving Party shall limit access to Confidential Information to personnel who have a reasonable need to access such information for the Purpose. The Receiving Party may rely on its standard confidentiality policies and procedures to bind such personnel.

5. Security Practices. The Receiving Party shall apply its standard security practices to Confidential Information, which practices the Receiving Party represents are commercially reasonable for an organization of its size and industry. The Receiving Party shall not be required to:
   (a) Implement security measures beyond those it uses for its own confidential information;
   (b) Obtain specific certifications or undergo third-party audits;
   (c) Provide access logs, security assessments, or similar documentation to the Disclosing Party;
   (d) Segregate Confidential Information from other business information.

6. Limited Responsibility. The Receiving Party shall use reasonable efforts to ensure its personnel comply with confidentiality obligations. The Receiving Party shall not be liable for:
   (a) Unauthorized disclosures by personnel who violate the Receiving Party's policies;
   (b) Security breaches resulting from sophisticated cyber attacks despite reasonable security measures;
   (c) Disclosures resulting from the Disclosing Party's own actions or failures.

7. Notification. The Receiving Party shall notify the Disclosing Party within a commercially reasonable time after discovering any material unauthorized disclosure of Confidential Information.

8. No Audit Rights. Nothing in this Agreement shall grant the Disclosing Party any right to audit, inspect, or access the Receiving Party's systems, facilities, or security documentation.

💬 Negotiation Tips

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  Push for "reasonable care" over "highest degree of care." The highest standard is essentially strict liability and creates significant risk for inadvertent breaches.
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  Tie security measures to your existing practices. Language like "consistent with Receiving Party's standard security policies" prevents you from having to implement entirely new systems.
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  Limit responsibility for third parties. You should only be responsible for breaches by authorized Representatives, not for sophisticated hackers or rogue employees.
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  Resist specific technical requirements. Requirements for specific encryption standards or certifications may be expensive to meet and quickly become outdated.
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  Negotiate reasonable notification timelines. 24-hour breach notification is often impractical. Push for 72 hours or "prompt notification" to allow proper assessment.
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  Push back on audit rights. Audits are disruptive and may reveal your own confidential practices. If required, negotiate for reasonable notice, frequency limits, and confidential treatment.