If you are running a business venture, it is essential to protect your confidential information. This is what an NDA does. What is an NDA? NDA stands for Non-Disclosure Agreement, and it is a legal contract between two or more parties. Basically, an NDA is used to keep sensitive information confidential.
Unfortunately, many business owners don’t understand the importance of having these legal agreements when building a confidential relationship. Also, many organizations operate with the false belief that simply having their employees sign Non-Disclosure Agreements is enough to protect their interests. However, this is not the case. Certain elements must be present for a Non-Disclosure Agreement (NDA) to be legally binding.
This article will discuss everything you need to know about what Non-Disclosure Agreements (NDA) are and the purposes they serve. We will also provide tips on how businesses can use a Non-Disclosure Agreement to protect their confidentiality agreements, sensitive information, and intellectual property.
What Is An NDA (Non-Disclosure Agreement)?
As stated earlier, a Non-Disclosure Agreement is a legally binding contract between two or more parties. It is an agreement that stipulates a party’s confidential and proprietary information, protects trade secrets, and states what legal and financial penalties accrue against such disclosure. A Non-Disclosure Agreement ensures that such protected information remains private between two parties and does not go outside the terms of this legal framework.
Businesses typically use confidentiality agreements for protecting relationships, identifying protected information, and all other purposes that ensure the parties agree that certain sensitive information remains confidential within the legal ramifications.
Summarily, Non-Disclosure Agreements outline public knowledge and state the specific information that must remain private. An NDA ensures that valuable information will not be revealed to a non-authorized person and a business partnership stays within the legal ramifications.
Types of Non-Disclosure Agreements
You should note that different Non-Disclosure Agreements exist to protect different types of information. The three primary types of NDAs are:
Unilateral Non Disclosure Agreement
Unilateral NDAs are also known as one-way confidentiality agreements. In this agreement, only one party is disclosing sensitive information while the other party agrees not to disclose it. Typically, this type of agreement happens when an individual wants to protect their personal information or someone who has signed a Non-Compete Agreement.
Many NDAs fall under this category. For instance, new employees sign an agreement not to reveal the confidential information they learn during and after the job. A unilateral NDA also covers copyright protections, a research partnership agreement, and more.
Bilateral And Mutual Non-Disclosure Agreement
As the name suggests, two parties are involved in a mutual agreement to keep sensitive information from public disclosure. In this type of agreement, two parties disclose confidential information to each other and agree not to disclose it outside the scope of the agreement. This non-disclosure agreement is usually executed between business partners engaged in a joint venture that involves sharing proprietary information.
For example, when two companies are collaborating on a new product, they will sign a mutual NDA to protect the secrecy of their research and development. The agreement will state what information each company can share with the other and what they cannot.
A multilateral NDA is also known as a multiple-party confidentiality agreement. In this type of agreement, three or more parties share information between them and agree not to disclose it outside the scope of the agreement. These Non-Disclosure Agreements can be bilateral and encompass several other parties where mutual privacy is needed.
Advantages And Disadvantages Of Having An NDA
Now that you know what an NDA is and what it protects, you might be wondering whether or not you should have one. Here are some advantages and disadvantages of having a Non-Disclosure Agreement:
- Information will be kept private
- There’s enough clarity on what information can and cannot be shared
- It doesn’t cost much to create
- Consequences are outlined
- An NDA can create an atmosphere of mistrust
- It poses the risk of scaring off top-tier talent from joining the firm
Requirements Of A Non-Disclosure Agreement
There are different elements that an NDA should have for it to be legally enforceable. Also, you should know that there is no specific NDA template that must follow. However, most Non-Disclosure Agreements:
Include A Confidentiality Clause
A confidentiality clause is the soul of the agreement, and it outlines what information is to be kept confidential. It also usually states how long the agreement will last.
The confidentiality clause will state what cannot be disclosed, such as trade secrets, business plans, and other proprietary information. The clause might also include a list of exceptions to what can be disclosed.
Define Terms And Obligations
A Non-Disclosure Agreement should define the terms and obligations of both parties. For instance, the discloser might state that they own the disclosed information and that the receiving party cannot use it for personal gain. The agreement should also say what will happen if either party breaches the contract.
No Waiver Clauses
Most Non-Disclosure Agreements will also include a no waiver clause. This clause states that the failure of either party to enforce their rights under the agreement does not mean they have waived those rights.
Have A Signature Page
The signature page is where the parties involved will sign and date the agreement. The signature page proves that the parties have read and agreed to the terms of the Non-Disclosure Agreement. Also, all parties must sign the NDA before any mutual exchange.
What Do NDAs Protect?
There are different things you can protect with a Non-Disclosure Agreement, such as:
Proprietary Information is the most common type of information protected under an NDA. This type of information gives a company an edge over its competitors. They include formulas, patterns, compilations, programs, trade secrets, salary structure, devices, methods, techniques, processes, or know-how.
An invention is any new and useful process, machine, article of manufacture, or composition of matter. Inventions can also include improvements to an existing design. If you have not filed a patent application for your pending invention, you can use an NDA to protect it.
You can use an NDA to protect personal information, such as medical records and financial statements. This type of information is usually protected under state and federal laws.
What NDAs Don’t Protect
Non-Disclosure Agreements cannot protect everything. Below, we list some of the things an NDA cannot protect:
Publicly Available Information
Information in the public domain, such as news articles and press releases, does not fall under the purview of a Non-Disclosure Agreement. However, embargoed press releases and other confidential information that has not been made public can be protected.
You cannot use an NDA to protect an idea because it is not peculiar to your company. However, you can use Non-Disclosure Agreements to protect the expression of that idea. For instance, you can use an NDA to protect a detailed business plan or prototype.
Also, NDAs don’t protect illegal information, such as trade secrets obtained through theft or espionage.
When the receiving party obtains valuable information legitimately, e.g., through research or reverse engineering, that information is not protected under a Non-Disclosure Agreement.
How To Enforce A Non-Disclosure Agreement?
There are different ways you to take legal action when an NDA has been breached. They include:
You can file for injunctive relief if you believe the other party has breached the agreement. This type of relief is a court order that requires the breaching party to stop disclosing privileged information.
Arbitration is a process where both parties agree to have their dispute resolved by neutral third parties. This process is often faster and cheaper than going to court.
If arbitration fails, you can file a lawsuit against the breaching party. This type of action is called a breach of contract. To win, you will have to prove that:
- You had a valid Non-Disclosure Agreement
- The other party breached the agreement
- You suffered damages as a result of the breach
The court will consider all the evidence and decide whether the other party breached the agreement. If they find it in your favor, they will award damages.
How To Protect Your Business Or Brand Beyond NDAs?
NDAs are very important, but they are not the only way you can protect your business or brand. If you want to protect your business or brand beyond Non-Disclosure Agreements, contact us!
We are a reputable company dedicated to offering small and mid-size government contractors the professional services they require to manage their human resources, pay their employees, and achieve industrial security.
We are committed to providing our clients with the tools they need to succeed in an ever-changing business landscape. We also offer a comprehensive suite of compliance solutions to help our clients comply with business regulations. Contact us today to learn more.