A non-disclosure agreement (NDA), also known as a confidentiality agreement (CA), confidential disclosure agreement (CDA), proprietary information agreement (PIA), or secrecy agreement (SA), is a legal contract between at least two parties that outlines confidential material, knowledge, or information that the parties wish to share with one another for certain purposes, but wish to restrict access to or by third parties. It is a contract through which the parties agree not to disclose information covered by the agreement. An NDA creates a confidential relationship between the parties to protect any type of confidential and proprietary information or trade secrets. As such, an NDA protects non-public business information.
PURPOSE OF NON DISCLOSURE AGREEMENTS
NDAs can be used to share intellectual property, commercial information, or to formalize a relationship between two parties. When there is an exchange of information and it is critical that it remain confidential, a formal NDA is a useful tool. There are several cases where these agreements are helpful. For instance, two individuals may wish to work together in a venture where proprietary information needs to be revealed. A mutual person-to-person NDA would be useful in this situation. A business may wish to bring in an independent contractor or another business for input on a confidential matter or creation of a new product. Since the business looking for input is opening itself and its private information up to an outsider, a one-way NDA would be appropriate. It ensures that the company’s information will remain confidential when there is no longer a relationship with the outside party.
Essentials of a NDA
Non-Disclosure Agreements don’t have to be long and complicated. In fact, the good ones usually don’t run more than a few pages long.
The key elements of Non-Disclosure Agreements:
- Identification of the parties
- Definition of what is deemed to be confidential
- The scope of the confidentiality obligation by the receiving party
- The exclusions from confidential treatment
- The term of the agreement
The Parties to the Agreement
The parties to the agreement are usually a straightforward description set forth at the beginning of the contract. If it’s an agreement where only one side is providing confidential information, then the disclosing party can be referred to as the disclosing party and the recipient of the information can simply be referred to as the recipient.
The one tricky part here is to think about whether any other people or companies may also be a party to the agreement. Does the recipient expect to show the confidential information to a related or affiliated company? To a partner? To an agent? If so, the NDA should also cover those third parties.
What Is Deemed Confidential?
This section of the NDA deals with defining what confidential information means. Is it any information? Is it information that is only marked in writing as “confidential”? Can oral information conveyed be deemed confidential?
On one hand, the disclosing party wants this definition of confidential information to be as broad as possible to make sure the other side doesn’t find a loophole and start using its valuable secrets.
On the other hand, if you are the recipient of the information, you have a legitimate desire to make sure that the information that you are supposed to keep secret is clearly identified so that you know what you can and can’t use.
Oral information in particular can be tricky to deal with. Some recipients of information insist that only information conveyed in writing need be kept confidential. And, of course, the party giving oral information may say that that is too narrow. The usual compromise is that oral information can be deemed confidential information, but the disclosing party has to confirm to the other side in writing sometime shortly after it has disclosed so that the receiving party is now on notice as to what oral statements are deemed confidential.
Scope of the Confidentiality Obligation
The core of the Non-Disclosure Agreement is a two-part obligation on the receiver of the information: to keep the confidential information in fact confidential and not use the confidential information itself.
So the first part is that the recipient of the confidential information has to keep it secret. And this usually means that the recipient has to take reasonable steps to not let others have access to it. For example, reasonable steps could include that only a few people within the recipient’s company have access to the information and they are all informed of the nature of the confidentiality restrictions.
The second part is also crucial—that recipients can’t use the information themselves. After all, the last thing you want is for them to take your great idea or mailing list and make a bizillion dollars from it.
If the scope of the NDA is broad enough, then you can sue for damages or to stop the recipients if they breach either their confidentiality obligations or their non-use agreement.
Exclusions from Confidentiality Treatment
Every NDA has certain exclusions from the obligations of the receiving party. These exclusions are intended to address situations where it would be unfair or too burdensome for the other side to keep the information confidential.
The common exclusions include information that is
- Already known to the recipient
- Already publicly known (as long as the recipient didn’t wrongfully release it to the public)
- Independently developed by the recipient without reference to or use of the confidential information of the disclosing party
- Disclosed to the recipient by some other party who has no duty of the confidentiality to the disclosing party
The NDA can also deal with the situation in which the recipient of the information is forced to disclose the information through a legal process. The recipient should be allowed to do that if forced by court order without breaching the NDA as long as the recipient has warned the disclosing party in advance of the legal proceeding.
Term of the Agreement
How long should the NDA last? Some attorneys may argue that the NDA should last forever. Why should someone have the right to use your confidential information at any time?
But if you are the recipient of the confidential information, you probably want to insist on a definite term when the agreement ends. After all, most information after a certain number of years becomes useless anyway, and the cost of policing confidentiality obligations can become expensive if it’s a “forever” obligation.