Why Governing Law and Jurisdiction Matter
Every NDA should specify which state or country's laws will govern the agreement and where disputes will be resolved. Without these provisions, a breach dispute can devolve into a costly fight over procedural issues before the substantive issues are even addressed. The parties may end up litigating in an inconvenient forum under unfavorable law — outcomes that a simple clause in the NDA could have prevented.
Governing Law vs. Jurisdiction: What Is the Difference?
These two concepts are related but distinct.
Governing Law (Choice of Law)
The governing law clause determines which state or country's laws will be used to interpret the NDA and resolve disputes. This affects everything from how the agreement is construed to what remedies are available.
Jurisdiction (Forum Selection)
The jurisdiction clause determines where disputes will be heard — which courts or arbitration bodies have authority over the case. You might choose the courts of a specific state or county, or you might specify arbitration through a particular arbitration body.
Important: These can be different. You could specify that the NDA is governed by New York law but that disputes will be resolved through arbitration in San Francisco. While this is possible, it adds complexity and is usually unnecessary.
For simplicity and to avoid conflicts, it is generally best to align your governing law and jurisdiction in the same state. This ensures that the courts interpreting your NDA are familiar with the law that governs it.
Factors to Consider When Choosing Governing Law
Where the Disclosing Party Is Located
Many businesses default to choosing the law of their home state. This offers the advantage of familiarity — you understand the legal landscape and can more easily find local counsel if enforcement becomes necessary.
Strength of Contract Enforcement
Some states have more robust contract enforcement traditions than others. States like New York and Delaware are known for well-developed commercial law, predictable judicial interpretations, and strong enforcement of contract provisions.
Trade Secret Protections
If your NDA is primarily about protecting trade secrets, consider the strength of trade secret law in the governing jurisdiction. Most states have adopted the Uniform Trade Secrets Act (UTSA), but there are variations in how courts interpret and apply it.
Specific Legal Advantages
Some jurisdictions offer specific advantages:
- Delaware — Well-developed corporate and commercial law; sophisticated judiciary experienced with business disputes
- New York — Strong tradition of enforcing commercial contracts as written; extensive case law on confidentiality agreements
- California — Strong trade secret protections under both state and federal law, but restrictive approach to non-compete provisions
The Other Party's Location
If the other party is located far from your chosen jurisdiction, enforcement becomes more complex and expensive. Consider whether the practical challenges of enforcing in a distant jurisdiction outweigh the benefits of your preferred governing law.
Jurisdiction Selection Strategies
Exclusive vs. Non-Exclusive Jurisdiction
Exclusive jurisdiction means disputes can only be brought in the specified forum. This provides certainty but may be disadvantageous if you need to seek emergency relief in a court closer to the breaching party.
Non-exclusive jurisdiction means the specified forum is an option but not the only one. This provides flexibility but less predictability about where disputes will end up.
Personal Jurisdiction Considerations
Even if your NDA specifies a particular forum, the court must have personal jurisdiction over the parties for the clause to be effective. A forum selection clause generally creates consent to jurisdiction, but there can be challenges, particularly with international parties.
Convenience Factors
Courts occasionally decline to enforce forum selection clauses if the chosen forum is clearly inconvenient for both parties or if there is a more logical forum. Choose a jurisdiction that has a reasonable connection to the transaction or the parties.
If both parties are in the same state, the choice is straightforward — use that state's law and courts. When parties are in different states, the disclosing party's state is often the default choice, but this is negotiable.
Arbitration vs. Litigation
Benefits of Arbitration
- Confidentiality — Arbitration proceedings are private, which aligns well with the confidential nature of NDA disputes
- Speed — Arbitration is typically faster than litigation
- Expertise — You can select arbitrators with relevant expertise
- Enforceability — Arbitration awards are generally easier to enforce internationally than court judgments
Benefits of Litigation
- Injunctive relief — Courts can issue temporary restraining orders and preliminary injunctions more quickly than arbitrators
- Discovery — Court proceedings offer more robust discovery tools for gathering evidence
- Precedent — Court decisions create legal precedent that can deter future breaches
- Appeal rights — Court judgments can be appealed, while arbitration awards generally cannot
Hybrid Approach
Many NDAs use a hybrid approach: disputes are resolved through arbitration, but either party retains the right to seek injunctive relief from a court. This provides the privacy and efficiency of arbitration for most disputes while preserving access to emergency court remedies when information is at risk of immediate disclosure.
International Considerations
When parties are in different countries, governing law and jurisdiction become even more complex.
Treaty Frameworks
International enforcement of judgments and arbitration awards is governed by treaties like the New York Convention (for arbitration) and the Hague Convention (for court judgments in participating countries). Arbitration is generally easier to enforce internationally because the New York Convention has broad adoption.
Cultural and Legal System Differences
Different countries have fundamentally different approaches to contract law, confidentiality, and enforcement. What is enforceable in the United States may not be enforceable in another country, and vice versa.
Language and Translation
If the NDA will be translated, specify which language version controls in the event of a discrepancy. Translation disputes can add significant cost and delay to enforcement proceedings.
Common Mistakes
Not Including Any Governing Law Clause
This leaves the determination entirely to the court, which may apply a different state's law than either party anticipated. Always specify governing law.
Choosing an Unrelated Jurisdiction
Selecting a jurisdiction that has no connection to either party or the transaction may raise enforceability concerns. Courts are more likely to uphold forum selection clauses that have a reasonable relationship to the agreement.
Conflicting Provisions
Make sure your governing law, jurisdiction, and dispute resolution provisions are consistent. Conflicting clauses create confusion and litigation over which provision controls.
Create Your NDA with the Right Jurisdiction
PactDraft helps you set up your NDA with appropriate governing law and jurisdiction provisions based on your location, the other party's location, and the nature of your business relationship. Generate a professional NDA with clear, enforceable dispute resolution terms in minutes.