A Non-Disclosure Agreement: the Secret to Keeping Secrets
A non-disclosure agreement (NDA) is a legally enforceable contract protecting the privacy and trade secrets of the party who pens it. NDAs are used liberally in business with employees and vendors. Companies require signature and agreement, and recipients are compelled to keep private information secret and secure.
Common Issues Addressed in an NDA
The information protected by an NDA is unlimited and can consist of passwords, network access, sales and marketing techniques, accounting figures, business plans, blueprints or trade secrets to name just a few.
Typically NDAs do the following:
- Protect sensitive or private information - participants are lawfully prohibited from sharing or releasing information protected by an NDA.
- Protect patent rights - with new products an NDA can safeguard patent rights during development and avoid trade secrets being stolen and used for gain.
- Express privacy and permission - NDAs specify what is ok for public consumption and what is off limits and needs to be kept under wraps.
Steps to Execute an NDA Agreement
- The first thing you need to do is to identify if you need an NDA and if so what information do you want to protect.
- Determine what you will share with others. If you are not divulging classified secrets with employees or vendors, you may not need an NDA.
- Until you start using your NDA, protect your secret information and do not share it with anyone.
- Next, you will need to define the terms of your NDA.
- Explicitly outline what the “confidential information” is and how it may be accessed and used by those with authorization.
- Detail what information is excluded from the NDA.
- You will want to be very clear about your expectations and the requirements of the party signing it.
- List any situations where the information may be shared without consequence.
- Set your standard of care (treat the information as it were their own).
- Define the terms and period for the agreement.
- You then need to detail the legal punishment for breach of contract.
- Assign attorney’s fees and legal expenses in the case of a violation.
- Have your employee or vendor sign the agreement with a witness and notary present.
Representing the Recipient of Confidential Information: The
The exclusions clause in an NDA specifies information that is not included and therefore not protected by the NDA. It is essential to add this piece in about information that has already been disclosed to the public or published somewhere. This applies to details that may impede the recipient's ability to work for you if kept secret.
General Types of NDAs
Typically there are three types of NDAs, each serving a different purpose and audience.
A unilateral NDA is a one-sided agreement most often a business that needs staff and vendors to access secure information and wants to protect its secrecy. The company is the issuer, and the recipient may be anyone that they deem necessary to have access.
Bilateral (or Mutual)
A bilateral or mutual NDA is when two companies or entities agree to share some secrets to achieve a greater goal but want their interests protected. This situation would be like Apple and hardware company working on a joint venture to create a product that requires hardware and software to work together.
This type of agreement is more complicated as both sides must be represented. The agreement will include explicit details of what information will be shared and what will be kept private.
This type of NDA would be for three or more entities working together, all needing to protect their trade secrets. An example might be a group of competing companies or even a small group of government organizations.
Non-Disclosure Agreement Types by Context
Depending on what secrets you are trying to protect, your NDA should reflect that by language and specifics. There are a few types you may run into:
- General NDAs
General NDAs are generic business agreements and are used in instances such as hiring a contractor or employee, evaluating a product, or reviewing a business plan. They cover a wide range of uses and topics.
- 1 Investor NDA
The investor NDA is more specific to situations where a company engages in discussions with a potential investor, and they share classified information during the discussion. However, in most cases, investors are very reluctant to sign an NDA and many times will refuse.
- 2 The Transactional Non Disclosure Agreement
This type of NDA is somewhat of a hybrid of the general and investor NDAs. It reads more like a mutual NDA protecting both parties’ interests. The specific difference is that all the stipulations will apply to one single transaction.
Consequences of Breaching an NDA Agreement
Within your NDA you will need to clearly, spell out the terms of a breach. If you find that someone has violated the agreement, you must take swift action. Review your NDA to make sure the person’s actions are in line with breach of the contract. You will then need to conduct a thorough investigation to prove the breach occurred. Then you will want to file a legal action against the violator and proceed according to your NDA.
Why Would You and Who Can Use NDAs?
Anyone with information or secrets to protect can use an NDA. You may be an individual who is working on inventing a new product or a large corporation with many trade secrets to protect.
The purpose of using an agreement is to proactively protect your secrets from getting out to the public until you want them to or forever. The protection of informational assets can make or break a company.
Are There Any Disadvantages to Using NDAs?
Although an NDA can be a powerful and helpful legal tool, there are also some disadvantages you may want to consider as well.
- Proof - you need to monitor use of your information and watch for violation of the agreement. You then need to perform an investigation and have proof that the contract was violated.
- Enforcement - you will need to back the agreement up with legal action that can be costly and time-consuming.
- Limitations - depending on how your information is obtained, jurisdiction comes into play, and it may be difficult or even impossible to legally impose sanctions on the person or entity that violated your NDA.
Where Can I Get a Non-Disclosure Agreement
The Internet includes a ton of useful resources where you can download a generic copy of an NDA to use for your purposes. Here are some you can use:
- Can I buy a ready-made agreement or will I have to pay a solicitor to draw one up?
There are online form builders you can use to purchase one cheaply but if you want to cover all your bases, you may want to consult your attorney.
- 1 What are the key risks associated with not having a non-disclosure agreement?
Your business may suffer from secret information getting out and your competition using it to beat you to the punch. Additionally, your private network may be violated and assets stolen. The risks are not only reputation and frustration but may also be financial and physical losses.
- 2 Can there be any problems when trying to establish a non-disclosure agreement with a public-sector customer?
Sometimes you will find that a potential public-sector customer or investor refuses to sign. Then you have to decide if it is worth moving forward without an NDA.
- 3 What happens if the other party breaches our non-disclosure agreement?
You should immediately perform an investigation, review your NDA and proceed with legal action detailed in your agreement.
5. WHAT SHOULD NON-DISCLOSURE AGREEMENTS NOT INCLUDE?
Do not include any of the specific classified information that you are protecting with the agreement. Refer to such information in broad terms such as passwords, login credentials, etc.
- 4 If a buyer signs an NDA, can they solicit my employees or customers?
They cannot as long as you specified within your NDA that solicitation of employees or customers would leave them in breach of contract. If it is not clearly stated in the NDA, then you may leave yourself vulnerable.
- 5 Is all information included within an NDA, or is there some information that doesn't qualify?
Only the information that you refer to as being confidential is covered by your NDA. You should also have a list of exclusions that is information that the recipient may have access to but is not held as secure or private.
- 6 Are NDAs universally applicable regardless of where they are signed and who the parties are?
No. You must specify the parties involved (by name and full legal company name) along with jurisdiction and what legal authority resides over the agreement.
Glossary of Terms
Breach - a legal violation of the contract subject to punishment.
Confidential Information - anything the owner specifies as secret and unavailable to the public.
Copyright - a legal term protecting ownership of something published, written or composed.
Disclosure - making secret information known to another person or the public.
Exclusions - something that is not included in the agreement.
Effective Date - the date the agreement begins.
Indemnity - protection against the loss or something or financial burden.
Intellectual Property - a piece of work or invention as the result of creativity.
Non-Circumvention - protecting against someone from disclosing proprietary information to another party.
Owner - the person or entity drafting and enforcing the agreement.
Provisions - a clause or condition that requires one or more parties to adhere to a strict agreement.
Recipient - the person signing and agreeing to the contract.
Term - the period of time that the agreement is legally binding.
Trade Secrets - a proprietary formula, technique or application used by a company in producing goods and services.
Unauthorized Use - using something in a way that was not intended or authorized by the owner.