What is a Non-Disclosure Agreement (NDA)?
A Non-Disclosure Agreement (“NDA“) is a legally enforceable contract that establishes confidentiality between at least two parties mainly the owner of the confidential information and the recipient of that information. In short, if you are asked to sign an NDA, you are asked to promise that the sensitive information shared with you should not pass on to any other body or an individual. And if you are the issuer of an NDA, you are asking someone else to not share the information with anyone, that you might share with them.
NDAs are alluded to by various names like Confidentiality Agreement (CA), Proprietary Information Agreement (PIA), Confidential Disclosure Agreement (CDA), Secrecy Agreement (SA).
Key Elements of a Non-Disclosure Agreement
Parties to the Agreement
This section of defining parties to the agreement is usually a straightforward exercise. In these, the parties that are entering the agreement are defined. If it’s a one-sided NDA then the terms like ‘disclosing party’ and ‘receiving party’ can be further used to define the party sharing confidential information and the party receiving the confidential information. However, it should be clearly specified and mentioned to such parties that the information would be privy to the subsidiaries or not and whether they are allowed to share information with the third party or not that they are already working with.
Definition of Confidential Information
In this section, one needs to clearly mention what exactly comes under ‘Confidential Information’ and both the parties should be clear about ‘Confidential Information’. Generally, the disclosing party wants this section to be as broad as it can be so that the other party may not use any loopholes in the agreement while the receiving party wants this section to be narrow and should be clearly mentioned as to what can be disclosed and what cannot be.
Scope of the Confidential Information
Generally, an NDA consists of two parts, one where the confidential information is to be kept secret and the other defines the purposes for which the confidential information is to be used. If you are disclosing the party, you want the scope to be narrow and well defined while it’s the other way around for the receiving party.
Exclusion from Confidential Treatment
Each NDA has certain exclusions where the receiving party is excluded from keeping information confidential. This section seeks to address situations where it would be unfair for the receiving party to keep the information confidential where it is already known to the public or to the recipient themselves.
There might be some unavoidable situation where the recipient is bound to share information through court order or by law. There are many reasonable and common exclusions situations to be considered.
Term of the Agreement
This section essentially defines how long the NDA will last. If you are a Disclosing Party, you want this to last forever and if you are a Receiving Party, you want this to exist for a definite term. A reasonable term depends upon the industry and nature of the information NDA seeks to protect.
Kinds of Non-Disclosure Agreements
Unilateral NDA (One-Sided NDA)
In this NDA, two parties are involved and, only one party discloses confidential information and expects the other party to prevent the information from any further disclosure.
Bilateral NDA (Two-Sided NDA)
In this NDA, two parties are involved and both of them disclose confidential information to each other with an intention to protect and secure the information from external parties.
Multilateral NDA
This type of NDA, involves three or more parties, out of which one of the parties discloses a piece of confidential information, and the other parties promise to have that information protected from any further disclosures.
The Importance of Non-Disclosure Agreements
A signed NDA can help you avoid a lot of problems. Without an NDA, your confidential information can be disclosed publicly or used by employees, clients, vendors, or anyone else that you share them with. An NDA lets the recipients of your proprietary information know that you expect confidentiality from them and it authorizes you to take legal action if the contract is violated.
There are multiple instances where you might require to sign an NDA for your business. A few of them include:
1) Business records, deals, and plans
2) Technical data or designs
3) Trade secrets and original research
4) Inventions and product ideas
5) Sales leads and customer or client details
Some of the major benefits of signing an NDA are:
1) Since it is a legal document, it’s of immense importance for any conflict that might arise in the future. Any party infringing the agreement would be legally enforceable to compensate for damages.
2) It maintains the secrecy of the confidential information shared between two or more parties and reduces its chances of important information going out of the organization.
3) It clearly states anything that comes under the bracket of ‘confidential’, in the long run avoiding any ambiguity or loss of information.
4) It protects disclosures of intellectual property safeguarding the organization as a whole.
Precautions While Signing a Non-Disclosure Agreement
1) The information mentioned in the agreement should be precise and the language used should be basic and unambiguous.
2) The involved parties should read the whole NDA and verbally clarify it. This will help in staying away from any further errors.
3) Try not to include non-required provisions or utilize clashing sentences while drafting the report.
4) Make sure that the agreement has an expiration date and if needed, renew the same if required.
Violation of Non-Disclosure Agreement
NDA’s, generally, have a provision wherein the court can put restraining orders on the infringing party. Alongside the restraining orders, the affected party may likewise ask for monetary damages which are found out through the proportionate method. Another route by which disputes can be settled is through the process of arbitration. Before an NDA is signed, parties involved should mutually decide the arbitration terms, the seat of arbitration, and the number of arbitrators.
Authors: Sakshi Shairwal and Rajarshi Raghuvanshi (Sakshar Law Associates)
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