Contract Clauses, Intellectual Property

What are NDAs and What Should be in Them?

October 01, 2019October 01, 2019
What are NDAs and What Should be in Them?

A Non-Disclosure Agreement (or an NDA) is a type of contract that protects important information from dissemination.  Depending on the local jurisdiction, NDAs can also be called “confidentiality agreements”, but it’s important to know that these terms are synonymous.  Given today’s fast-paced and interconnected economic landscape, NDAs are not only becoming increasingly popular, but increasingly important as well.

In a typical NDA, one party acts as the “discloser” and the other as the “receiver”.  The disclosing party is the owner of the valuable information, which is then offered to the receiving party.  This is called a unilateral NDA.  There are a number of reasons why the discloser would share this information, but is most frequently the result of a business collaboration.  When two or more businesses collaborate or partner, an NDA helps establish a strong, confidential relationship.  In the case where both parties share confidential information with one another, the contract is called a mutual NDA.

NDAs are only used when the information is considered too economically important for public dissemination, which may include anything from client lists to market research.  In any case, the disclosing party typically believes that these “secrets” give them a competitive advantage.  The NDA is meant to secure this advantage by establishing patent rights, protecting sensitive information, and explicitly establishing what is/isn’t confidential.

Lastly, it’s worth reiterating that NDAs are indeed written contracts and as such, are legally-binding.  In other words, should the receiving party divulge any information deemed “confidential” by the NDA, they’ve committed contract breach and can—and often-times should—be taken to court.

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When Would I Need an NDA?

An NDA can be used to protect any type of information that an owner wishes to keep confidential.  For this reason, NDAs can be used in a seemingly endless number of situations.  Realistically however, businesses recurrently utilize NDAs to cover the same types of information.  These include:

  • Client Lists/Information
  • Trade Secrets (like Manufacturing or Product Development Procedures)
  • Intellectual Property
  • Research Results
  • Sales and/or Marketing Plans

This list certainly isn’t comprehensive, and the type of information owners want to conceal depends on the industry they’re in.  For example, engineering and biotechnology companies go to great lengths to ensure that their product designs aren’t compromised.  If—through whatever means—a business competitor gained access to their trade secrets, the competitor could produce a similar product for a cheaper price.  This would ultimately undermine the original product and cost the business thousands (perhaps millions) of dollars.

For this reason, anybody newly-affiliated with a business might be required to sign a preemptive NDA.  This can include collaborating businesses, consulting services, and even new hires.  Individuals that sign these NDAs can be held legally accountable should they divulge the confidential information, and accordingly breach the contract.  

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Key Provisions in an Effective NDA

Effective NDAs share many of the same features.  First and foremost, an NDA should detail exactly which information is regarded as “confidential”.  This is obvious to most owners, but less apparent is the fact that many experts suggest owners also include the information that’s considered nonconfidential.  The bottom line: it should be entirely clear which information can be shared and which information must remain private.

Details regarding ownership should also be established in the NDA.  It should be obvious which party owns the information—the discloser—and which is the receiver.  A few other key provisions include:

  • Schedules or Time-Tables
  • The Legal Obligations of All Involved Parties (Unilateral vs. Mutual NDA)
  • The Personal Information of All Involved Parties
  • Any Permitted Use of the Information
  • The Consequences (or Remedies) for Contract Breach

This last point is particularity important: like other types of business contracts, an NDA should detail the ramifications for parties that divulge the confidential information and thus breach the contract.  Furthermore, encouraging others to breach the NDA or unintentionally giving others access to the protected information may also lead to legal consequences.  For example, if an individual accidently leaves a document with NDA-protected information on a bus, they may be held accountable for carelessly disseminating the confidential information (even though there was no malintent involved).  

For owners worried about keeping their valuable information private, an attorney-reviewed NDA agreement can help.  Notably however, an NDA—similar to many other types of contracts—is only as strong as its terms, conditions, and provisions.  NDAs that fail to clearly establish the confidential information or the party roles will render owners vulnerable.

In many cases, an NDA that is ambiguous or lacking is nearly as dangerous as having no NDA at all.  An experienced attorney can be of great assistance here.  While many strong NDAs have similar features, every agreement will be unique.  A qualified professional should be consulted before drafting or signing your NDA.

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