A Brief Introduction About the Non Disclosure Agreement
Let’s understand what is a non disclosure agreement (NDA). It is of vital importance in the legal world. It is a contract that binds two parties to keep a secret that no third party can have access to. What is an NDA? The agreement is a promise of confidentiality about the material, knowledge, or information that has been shared between two parties. What is confidentiality? It is the agreement or state of keeping something secret or private.
The confidential information shared by way of the agreement cannot be made available to the general public or to the competitors. In general agreements, distinct NDA clauses are also included to protect sensitive information. It is important to note that the information that is already in the public domain cannot be protected by making this agreement. Only non-public information can be made a part of it. Also, if a person found out some information from other sources, and that information is a part of the NDA, the person is not obligated to keep it private.
Some examples of non disclosure agreement are attorney-client agreements, employee confidentiality agreement, doctor-patient agreements, etc.
People Involved in Non Disclosure Agreement
The confidential disclosure agreement is also known as a confidentiality agreement, a secrecy agreement or proprietary disclosure agreement, it is generally entered into by two companies, two individuals, an individual and a company or between other organisations, societies, partnerships, etc.
The two parties can be at a stage of a potential business relationship and enter into this agreement to understand their business prospects better. It can be unilateral (one party sharing secret information or material), bilateral (two parties sharing secret information or materials) or multilateral (multiple parties sharing secret information or material). The party who shares confidential information is called the ‘disclosing party’ whereas the party who receives confidential information is called the ‘receiving party.’
Purpose of the Non Disclosure Agreement
The aim of the agreement is to create a confidential arrangement between the parties to the contract to protect any information shared and often to safeguard trade secrets. The agreement safeguards a variety of other interests too of the party who shares the information. A layer of protection is added, and it restricts the usage of confidential information. Often when two companies are in talks for entering into a potential business relationship and are sharing internal company policies and secrets, the agreement plays a huge role in bringing in security at such a time. In a world of competition, secrecy is extremely important, and an NDA brings in that element of confidentiality.
An NDA is also entered into between an employer and an employee, or a company seeking funds and an investor, or between two individuals in some kind of professional relationship.
Contents of the Non Disclosure Agreement
There is a mutual non disclosure agreement and a non-mutual one. In the former, only one side shares confidential information. What are the contents of the non disclosure agreement? Which of the following is involved in a typical rights agreement?
- The details of the parties.
- Definition of what is ‘confidential.’
- The disclosure period during which information that is to be kept confidential is disclosed.
- The exclusions to the agreement.
- The term period of the agreement during which it is binding.
- What is to be done with confidential materials or information after the agreement period ends.
- Types of permissible disclosure that can be obtained via the court or a pre-determined process.
- The law governing the parties, also known as the jurisdiction clause.
- The place and type of dispute resolution.
- Obligations of the person receiving confidential information.
- Implications of the breach.
- The right to seek an injunction in an NDA as often monetary compensation is not enough.
Almost all the terms of an NDA are involved in a typical rights agreement. Generally, an NDA is divided into six important parts. The ‘parties to the agreement’ is the first part, followed by ‘definition of confidential information.’ The third part is of ‘exclusions to confidential information,’ the fourth part is ‘obligations of the party receiving the confidential information,’ the fifth part is ‘time period,’ and the last part contains miscellaneous provisions which can include the process of permissible disclosure.
Points to Consider While Preparing the Non Disclosure Agreement
- Identify if the NDA is required in the situation.
- By keeping the party who is sharing confidential information in mind, identify what information or materials must be kept confidential, which will be in the interest of the party.
- Do not reveal any confidential information before signing the NDA.
- Title the document.
- Clearly write down what is confidential information or materials in relation to this particular agreement. This could include financial information, client lists, trade secrets, company strategies etc.
- Insert an exclusion clause that states that any information that becomes public will not be bound by this agreement.
- Insert a clause that states that if the receiving party found out some information independently, it will not be included as a part of the agreement.
- Restrict the disclosure of the information.
- Limit the use of the disclosed information and insert a clause to require the written permission of the sharing party to make use of any disclosed information.
- State when the terms under which the information can be revealed.
- If one party wants to add clauses to the agreement, prior consent of the other party must be obtained in writing.
- Mention the start and end dates for the disclosure and a separate time period for confidentiality.
- End with a signature line.
Determining what constitutes confidential information is where negotiations can play a role. If you feel that disclosing some information will help protect your interests, you can negotiate the same with the other party. Negotiation strategies have been employed by companies and individuals before drafting the agreement to ensure that the interests of both parties are represented. The attitude of the company, organisation, or individual during the negotiation rounds is an indicator of how the relationship will be like in the future.
Benefits and Drawbacks of the Non Disclosure Agreement
- Safeguards information, materials, and company secrets.
- Protects intellectual property of a company, organisation, or individual.
- Preserves a business relationship and keeps it private while it is still in the stage of infancy.
- Prevents the leakage of company and trade secrets to competitors, and thereby supports the growth of a company.
- Helps the parties to understand their obligations as well as they are clearly stated.
- It creates a legal blanket as a court cannot grant relief for sharing a trade secret, but once it becomes a part of the agreement, a court can grant relief for breaching the agreement itself.
- The information protected by an NDA may not be in the public interest.
- There are problems of interpretation and enforcement.
- Bad drafting can create confusion which can defeat the purpose of the agreement.
- Enforcing the contract can lead to a lengthy and expensive litigation process.
- Does not bring in publicity that may be good for any business as a lot of information is kept private.
- Legal fees for drafting the agreement can be expensive.
What Happens in Case of a Violation?
If a non disclosure agreement has been violated, it is generally because of ‘misappropriation’ or copyright infringement, and it constitutes a breach of contract. The receiving party can be sued in court for damages. The basic remedies for breach of contract, specific performance, remission, reformation, restitution, and rescission are available to the injured party along with filing a suit under the intellectual property law.
Refer to the original agreement to know happens in case of a breach and then approach the court of law to make a legal claim. The injured party can also seek an injunction. Act quickly and immediately hire an attorney. Collect as much evidence as you can for the breach(1) as this will be helpful in court.
Before signing the agreement, make sure that there is a limit not only for disclosure of the information but also for its use. Clearly define what constitutes as ‘confidential information.’ However, if not drafted correctly, it made lead to misinterpretation and put a company or an individual’s intended secret information at risk.
Understanding how the NDA works is extremely important before signing it. In every country, different laws govern the agreements. Study the laws to understand the technicalities of drafting and filing. For example, in India, a secrecy agreement with witnesses has a longer limitation period than an agreement without witnesses. In some countries, the notarization and registration(2) of the agreement might be mandatory.