A Non-disclosure agreement – NDA is a legal contract that promises non-disclosure of confidential information, proprietary information, and designs or ideas shared with another party.
As mentioned above, a non-disclosure agreement is a legal contract signed by two or more parties to prevent disclosing certain confidential information. NDA contracts are usually signed between businesses and individuals, between two or more businesses, or between businesses and government organizations. Non-disclosure agreements are used for virtually any relationship where information needs to be kept confidential. NDA is commonly used between two parties in the following cases:
- When one party is looking to share its inventions or business ideas with a potential partner, investor, or distributor
- When one business is about to be acquired by another, NDA ensures that the information shared between the two parties remains confidential
- When two companies are about to enter into a joint venture
- When the parties involved are looking to share a new product or technology
- When a party is looking to outsource the services of another company or individual who may have access to sensitive/proprietary information while providing those services
- When employees are allowed access to sensitive information while doing their job
Other names used to describe a non-disclosure agreement include:
- NDA, NDA Agreement
- Non-disclosure Contract
- Financial Non-disclosure arrangement
- Non-disclosure Covenant
- Confidentiality Agreement
- Secrecy Agreement
- Proprietary Information Agreement
- Confidentiality Disclosure Agreement
Types of Non-Disclosure Agreements
There are two main types of NDA which are as follows:
In a mutual NDA, both parties agree not to disclose confidential information about each other. Mutual NDAs are commonly used in start-up environments when the NDA prevents either party from disclosing confidential information regarding the business.
In a non-mutual NDA, only one party agrees to keep the information shared confidential. Although NDAs naturally prohibit unauthorized disclosure of confidential information, a non-mutual NDA does not. Here the NDA is signed only by one party, who agrees that they will not disclose confidential information relating to the NDA.
Key Elements of a Non-Disclosure Agreement
There are several key elements that may be present in a non-disclosure agreement. These include the following:
Identification of the parties
A non-disclosure agreement should clearly identify the parties involved in the NDA and define their roles. This provision should define the parties involved by stating their names and job titles and list the addresses of all the parties involved. The NDA should also define which party is disclosing and receiving information, whether the NDA is mutual or non-Mutual, and should also set clear the intended use of information and the recipients who have signed NDA’s.
Description of the confidential information
This section of the non-disclosure agreement should clearly define the information that is intended to be confidential and not disclosed. The agreement should include what type of information is considered confidential, the confidential information’s title, and the NDA recipient’s intended use of the material. Additionally, the NDA should specify if the NDA recipient will receive the material in writing, electronically, or verbally. Most recipients usually request that only what is in writing be deemed confidential since the definition of what is to be considered as confidential and what’s not to be considered confidential can be hard to determine. For verbal information to be deemed confidential, the disclosing party must specifically inform the recipient in writing, that the information disclosed must be considered confidential.
Exclusions from confidentiality treatment
A non-disclosure agreement should specify the exceptions to NDA protection and describe how the NDA recipient can disclose the NDA’s confidential information. Under this clause, the NDA should specify exclusions from confidentiality treatment for information:
- Disclosed without NDA recipient’s authorization
- Publicly available, known, or already in NDA recipient’s possession prior to NDA
- Secured by NDA recipient prior to NDA signing
This provision in the NDA agreement should clearly define how the NDA recipient’s misuse of confidential information will be specifically dealt with. In addition, this clause should state that if the recipient discloses or misuses any confidential information, the organization/company/individual will have sole discretion to pursue all available legal remedies under applicable law, such as terminating the NDA and seeking injunctive relief or other remedies.
Obligations and requirements
This clause addresses the obligations and requirements of both parties, which includes a description of how information should be handled, i.e., with due care and safeguards.
The NDA also specifies that the recipient should restrict access to any confidential information. This provision should stipulate that if there is an unauthorized disclosure of the material, then there should be an obligation to mitigate damages. Additionally, this provision should also specify that a recipient must have reasonable measures to protect confidential information and ensure it does not reach third parties without the disclosing party’s consent.
Term of the agreement
The NDA should also specify when the agreement begins and ends, including the terms of any renewals. If a non-disclosure agreement is drafted to cover a specific project, the agreement should detail how long the confidentiality treatment will last. Additionally, it should also specify if the NDA agreement can be modified or terminated in any manner, at any time, and by whom.
Other key provisions that should be included in a non-disclosure agreement include:
Employee solicitation: This provision should be included in the NDA to clearly state that neither party should solicit or hire employees from the other. For example, if a company discloses confidential information to an employee of another company, then this clause will prohibit the receiving party from soliciting or hiring the disclosing party’s employees.
Jurisdiction: The non-disclosure agreement should specify the laws and courts where any disputes can be settled. Additionally, it should specify that if the parties file a dispute in court, then the court’s jurisdiction is where the disclosing party is located.
Arbitration clause: Another provision that should be included in the NDA agreement is an arbitration clause. An arbitration clause will provide that if the parties file a dispute in court, then the parties will agree to settle the dispute by privately mutually agreeing on one or more arbitrators.
No rights in the receiving party: The non-disclosure agreement should specify the parties do not create or grant any proprietary rights in each other or other third parties. If the parties use an NDA to cover a specific project, the agreement should also specify if the disclosing party has any proprietary rights in the confidential information. It should also state that the recipient’s acceptance of the NDA will not be construed as a transfer or license of any right, title, or interest in the disclosed material in favor of the receiving party.
Consequences of breach
The non-disclosure agreement should specify any consequences for breaching a confidentiality provision. It should also be stated that if either party breaches the agreement, then the other party is entitled to have its remedy at law and in equity. Such remedies may include:
- Injunctions: Where the disclosing party has no other remedy, a court may prevent further disclosure of confidential information by ordering an injunction. An injunction is simply a court order compelling a person or party to stop doing certain acts. An injunction can also be issued to compel a party or person to carry out certain acts.
- Monetary damages: If the disclosing party has suffered any damages as a result of the breach, then it may be given the right to seek monetary relief.
- Attorney fees: If a court finds the recipient breaches an NDA, it may order the disclosing party to be awarded attorney fees.
The NDA agreement should clearly state who is responsible for signing the agreement. In most cases, if the disclosing party has a registered business, then the manager or executive of that business will agree to sign the agreement. A non-disclosure agreement should also specify if the NDA is jointly or solo signed. Additionally, the agreement should include when the parties must sign the NDA. For example, in some jurisdictions, the parties must sign an NDA before discussing the confidential information, while in others, the parties must sign an NDA after discussing the confidential information.
Frequently Asked Questions
A non-disclosure agreement (NDA) is a legally binding contract. In order to be enforceable, the NDA must be signed by both parties and contain “consideration” for the promise not to disclose. The consideration must be something valuable, such as the receiving party agreeing not to sell the disclosing party’s recipe to a food production company.
The NDA can be for a specified or an unspecified period of time, although some NDAs have automatic expiration dates. For example, if the information is only good for one year, then the NDA might expire when that year ends.