Is an indemnity clause required in an NDA under US law?

No, an indemnity clause is not required by law or standard market practice in US NDAs. Many NDAs contain only confidentiality, permitted use, and return of information provisions. Indemnity is negotiated on a case-by-case basis and is more common when the stakes or sensitivity of the information are high or when one party has significantly greater bargaining power.

Can an indemnity clause in an NDA indemnify a party for its own breach?

Generally, no. Courts interpret indemnity clauses strictly and construe ambiguities against the drafter; indemnifying a party for its own breach is disfavored absent explicit language. Most NDAs carve out the indemnified party's own negligence or breach from the scope of indemnification to ensure fairness and enforceability.

What is the difference between indemnity and hold harmless in an NDA?

In practice, the terms are often used synonymously and both appear in a single clause (defend, indemnify, and hold harmless). Technically, "indemnify" means to compensate for loss or damage, while "hold harmless" means to protect from liability; using both ensures the indemnifying party both pays claims and removes liability from the indemnified party. The distinction is not material under US law and both are enforceable contractual provisions.

How long does an indemnity obligation in an NDA last?

The duration of indemnity depends on the contract language and can extend indefinitely unless the NDA specifies otherwise. Most sophisticated NDAs state that indemnification obligations apply only to breaches or misuse occurring during the confidentiality period and survive termination for a defined tail period (commonly 12 to 24 months) to cover pending or anticipated claims. Silence on survival typically means courts will enforce indemnity for pre-termination breaches indefinitely.

The indemnity clause in a non-disclosure agreement (NDA) under the United States law

US NDA indemnity clause guidance: standard market terms, enforceability under state law, negotiation strategies, and common errors to avoid.

Standard Position

Indemnity clauses in US NDAs are relatively uncommon compared to general commercial agreements, but when included, they typically require one party to defend and hold harmless the other party from claims, damages, or liabilities arising from breaches of the NDA's confidentiality obligations or from the indemnifying party's misuse of disclosed information. The standard market position places the burden on the receiving party (the party bound by confidentiality) to indemnify the disclosing party for third-party claims that result from the receiving party's violation of confidentiality terms. Many sophisticated parties resist broad indemnity provisions in NDAs because they create open-ended financial exposure beyond the core confidentiality duty.

Legal Basis

Under US common law and the Uniform Commercial Code (UCC), indemnity clauses are contractual allocations of risk and are enforceable provided they meet basic contract formation requirements: offer, acceptance, consideration, and mutual intent to be bound. The enforceability of indemnity provisions is governed by individual state law, as contract law remains primarily a state-law matter. Most states recognize that parties may allocate indemnification obligations freely, though some states (particularly in construction and regulated industries) restrict or void indemnity for a party's own gross negligence or willful misconduct. Courts interpret indemnity language strictly under the rule of contra proferentem: ambiguities are construed against the drafter. Unlike warranty disclaimers under UCC Article 2, indemnity clauses do not require specific language such as "as is" or "merchantability," but they must clearly express the intent to shift liability.

Drafting and Negotiation

When negotiating an indemnity clause in an NDA, define the triggering events precisely: Does indemnification apply only to breaches of confidentiality, or also to unauthorized use, misappropriation, or derivative works? Specify the types of losses covered: defense costs, judgments, settlements, and consequential damages. Include a duty-to-defend obligation, a notice requirement, and sole-control language clarifying that the indemnifying party controls defense (standard practice to prevent collusion or excessive settlement). Establish caps and baselines: many parties cap indemnification at the value of information disclosed or set monetary thresholds before indemnification triggers. Narrow the indemnity to third-party claims only; reciprocal direct claims between the parties are better handled through breach remedies. Carve out exceptions for claims arising from the indemnified party's own breach, negligence, or misuse, or for claims based on information that was independently known or lawfully obtained. Consider whether the indemnity survives termination and for how long. A receiving party should push back on uncapped indemnification, which can transform a confidentiality agreement into an insurance policy. A disclosing party should clarify that indemnification does not apply to their own careless handling of information or to claims that the confidential information itself is infringing.

Common Pitfalls

Failing to clearly define "third-party claims" can lead to disputes over whether a claim from the disclosing party themselves qualifies. Not excluding the indemnified party's contributory negligence or comparative fault creates exposure for the indemnifying party beyond fair allocation. Leaving indemnity undefined with respect to defense mechanics (who hires counsel, who approves settlement) invites conflict and delays. Coupling indemnity with broad consequential-damages language creates unlimited exposure and is often uninsurable. Omitting survival language for indemnification post-termination leaves ambiguity: most courts will imply that indemnity for pre-termination breaches survives, but explicit language prevents litigation. Using "hold harmless" language without specifying the underlying liability standard (breach, negligence, fraud) can produce unintended results. Finally, using a one-way indemnity when both parties will receive confidential information appears inequitable and invites pushback; consider reciprocal indemnification if both parties exchange sensitive data.

Sample language

The Receiving Party shall defend, indemnify, and hold harmless the Disclosing Party from any third-party claims, damages, and reasonable attorneys' fees arising directly from the Receiving Party's breach of its confidentiality obligations or unauthorized use of the Confidential Information, provided that the Disclosing Party (a) promptly notifies the Receiving Party in writing of the claim, (b) grants the Receiving Party sole control of the defense and settlement, and (c) does not itself contribute materially to the claim through gross negligence or willful misconduct. Indemnification shall not apply to claims arising from the Disclosing Party's own disclosure of the Confidential Information, the Disclosing Party's mishandling of the information, or claims that the Confidential Information itself is infringing or illegal.

This is general drafting guidance, not legal advice, and not a substitute for advice on your specific facts and jurisdiction. Sample language is a starting point to adapt, not a finished clause.

Frequently asked questions

Is an indemnity clause required in an NDA under US law?: No, an indemnity clause is not required by law or standard market practice in US NDAs. Many NDAs contain only confidentiality, permitted use, and return of information provisions. Indemnity is negotiated on a case-by-case basis and is more common when the stakes or sensitivity of the information are high or when one party has significantly greater bargaining power.
Can an indemnity clause in an NDA indemnify a party for its own breach?: Generally, no. Courts interpret indemnity clauses strictly and construe ambiguities against the drafter; indemnifying a party for its own breach is disfavored absent explicit language. Most NDAs carve out the indemnified party's own negligence or breach from the scope of indemnification to ensure fairness and enforceability.
What is the difference between indemnity and hold harmless in an NDA?: In practice, the terms are often used synonymously and both appear in a single clause (defend, indemnify, and hold harmless). Technically, "indemnify" means to compensate for loss or damage, while "hold harmless" means to protect from liability; using both ensures the indemnifying party both pays claims and removes liability from the indemnified party. The distinction is not material under US law and both are enforceable contractual provisions.
How long does an indemnity obligation in an NDA last?: The duration of indemnity depends on the contract language and can extend indefinitely unless the NDA specifies otherwise. Most sophisticated NDAs state that indemnification obligations apply only to breaches or misuse occurring during the confidentiality period and survive termination for a defined tail period (commonly 12 to 24 months) to cover pending or anticipated claims. Silence on survival typically means courts will enforce indemnity for pre-termination breaches indefinitely.

Related in the library

Adira drafts and reviews contracts under the law of the jurisdiction they work in.

See Adira