If you're planning to share confidential information with a third-party, you must do it in a way that ensures they respect the sensitive intelligence you've made them privy to. One of the key protective measures of achieving the necessary secrecy is through a non-disclosure agreement (NDA).
For those unfamiliar with NDAs, we've created this detailed guide on what you need to know – from the different types of non-disclosure agreements and the key elements to include, to what happens when someone breaches an agreement.
What is a non-disclosure agreement?
To maintain a competitive advantage, businesses must keep their projects, ideas and intellectual property under wraps. Likewise, start-up companies with new, profitable ideas can only succeed if they’re kept a secret.
A non-disclosure agreement is a document in which a person or business asks the subject of the NDA (which is another person or business) not to share confidential information shared with them. They can also be called:
Whatever it may be called, an NDA is still a written document where one or both parties agree to keep specific information confidential.
How do non-disclosure agreements work?
NDAs are used when a business encloses confidential information to potential investors, creditors, clients or suppliers. Doing so puts the confidentiality in writing, while each party's signature ensures trust, and helps to deter theft of intellectual property. The exact nature of the confidential information will be detailed in the NDA itself, but some typical situations where NDAs are used include:
Some NDAs bind a person or business to secrecy for an indefinite period, ensuring the signer will, at no point, divulge the confidential information contained within. Without such agreements, information can be freely made public – whether accidentally or maliciously.
Any penalties for breaking an NDA are laid out in the agreement and may include damages in the form of lost profits or criminal charges.
What are the different types of non-disclosure agreements?
There are two main types of non-disclosure agreements: unilateral and mutual.
A contract that stipulates one party to the agreement; the majority of NDAs fall under this category. Though such agreements aim to protect a business' trade secrets, they may also protect the copyright for information created as a result of an employee's research.
Here's an example: researchers in the private sector and professors at research universities are often required to sign NDAs that give the rights to any research they conduct to the business or university that supports them.
This type of NDA is executed between businesses engaged in a joint venture that involves sharing proprietary information. So, if one manufacturer knows of a new piece of technology being used in a certain product, they'll be required to keep such knowledge a secret.
What are the key elements of a non-disclosure agreement?
You may think that NDAs are sprawling documents filled with legalese, but actually, you only need a few pages to cover the relevant points. Typically, the key elements of a non-disclosure agreement include the following:
As a disclosing party, you want this definition to be as broad as possible to make sure the other side doesn't find a loophole and start revealing valuable secrets.
On the other hand, if you are the recipient of the information, you want to make sure the information you're supposed to keep secret is clearly identified, so you know what you can and can't use.
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If you agree to a term, then what is considered a reasonable amount of time? It's largely dependent on the industry and the type of information that's conveyed. It may be the case that a few years will suffice since tech changes so rapidly, it may end up rendering the information outdated anyway.
However long the terms are, the NDA needs to say that, even if the term has ended, the disclosing party isn't giving up any other rights that it may have under copyright, patent or other intellectual property laws.
What happens if someone breaches a non-disclosure agreement?
Whatever the specifics are in the case that an NDA is breached, there are a few things you can do in the aftermath:
Review the original document
Usually, the terms of what happens in the event of a breach are written into the NDA itself.
Investigate the theft or breach
If the information got out, you'll need hard evidence showing how it happened, which is a crucial step. If you can't prove your case, then you'll be responsible for the legal fees incurred by both parties under the terms laid out in the NDA.
When collecting information, look for how the secret got out, how the confidential knowledge has been used, and the potential economic value of the information. This can be difficult, but if you think you're eligible for damages then it must be done.
Determine what legal claim needs to be made
In almost all cases of a breach, you'll be able to pursue damages. Other legal recourses may include misappropriation of trade secrets, copyright infringement, breach of fiduciary duty (not acting in the interest of the other party), and patent infringement.
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