A Non-Disclosure Agreement (NDA) or Confidentiality Agreement is a legally binding contract that establishes a legal relationship between the two parties where one party discloses the confidential information, and second party receives it. However, NDA may also be two sided where both the parties disclose and receive confidential information to each other. The parties signing the NDA agree that confidential information which they got access to, will not be made available to any others in unauthorised manner because such unauthorised disclosure may put disclosing party at a big risk.
What is Confidential Information?
Confidential information is defined as information which is not in public domain, has economic value and the owner of such information has taken reasonable steps to safeguard it. Confidential information may be categorised into technical and business information. Technical information generally includes inventions, ideas, drawings, designs, software code etc whereas business information may be related to acquisition or merging, employee salaries, future plans, product launch, press release, financial data of the company. Any information which is in public domain cannot be named as confidential information. It is important to take utmost precautions to protect confidential information of the company. Other than physical measures, companies shall also have right policies & processes to safeguard it. Executing NDA is one of the ways to safeguard such valuable information wherein the parties disclosing and receiving the confidential information agree on specific terms and conditions to avoid misappropriation of the information.
When is NDA needed?
Businesses need to disclose business or technical information to third parties very often and it is important to take precautions before such sensitive information is disclosed. NDA is an important agreement to be executed in the instance when such information is disclosed and requires to be safeguarded:
- Business or product information is to be revealed to external vendors/consultants to seek advise or to get the product manufactured.
- Business/financial/product information is to be discussed with investors.
- Intellectual Property, especially invention details are to be disclosed to the patent attorney.
- Company information is to be shared with the employees.
Main clauses of NDA
Like any other agreement, NDA is signed between atleast two parties wherein one party discloses, and other party receives the confidential information. In some situations, both parties may disclose, or receive information from each other and such NDA may be called as mutual NDA.
The agreement starts with date of execution and full name & address of the parties. All the important terms used in the agreement, including the term “Confidential Information” shall be defined to avoid discrepancies at later point of time. Reason and purpose to execute the agreement shall be defined in the agreement along with obligation of both the parties.
Every agreement, including NDA, that is executed shall be have a specific term. Date of execution, term of the agreement and way of termination form a very important part of the agreement. Depending upon need and life of confidential information, term of NDA may be fixed. For example, if the purpose of NDA is to maintain confidentiality of the invention before filing for a patent, then, as soon as patent is filed for, the confidentiality of the invention may not be strictly required to be maintained.
Injunctive Relief forms part of most NDAs where disclosing party has the right to injunctive relief to stop the other party from breaching the agreement. Under this clause, the disclosing party can get a court order to stop the other party from breaching the agreement.
Apart from this, governing law, jurisdiction shall be specified to ensure that if any dispute happens, it is resolved with least difficulty.
Conclusion
NDA is one of the most commonly executed agreement and is used for various purposes. In order to be enforceable, the NDA shall have all the clauses of a valid agreement.
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