What is a Non Disclosure Agreement (NDA)?

A Non-Disclosure Agreement (NDA), often referred to  as Confidentiality Agreement in the UK, is a contract to protect confidential information.


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What Does NDA Mean?

NDA stands for Non-Disclosure Agreement. It is also commonly known as a confidentiality agreement or a Confidential disclosure agreement. By signing an NDA, a party agrees not to disclose, use, or exploit confidential information except in approved circumstances or with the other party’s consent. It also specifies the duration for the confidentiality obligations to apply. Confidential Information is usually sensitive in nature, associated with something technical, commercial, or that has a monetary value such as trade secrets.

Source: Freepik

Types of Non-Disclosure Agreements

There are two types of non-disclosure agreements: Unilateral NDAs and mutual NDAs. A unilateral NDA is also known as a non-mutual or one-way NDA. Here, only one party is forced to not disclose confidential information. On the other hand, a mutual NDA is also known as a bilateral NDA. Here, both parties are bound to not share any confidential information. The most commonly used one is the mutual NDA in which both you and the counterparty are disclosing confidential information and you both agree to protect that information to the best of your abilities. You may also sign disclosure or recipient NDAs. As the names suggest, these agreements are when information is disclosed only by one of the parties, and you are either the discloser (giving the information) or the recipient (the party receiving the confidential information).

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When is an NDA used?

NDAs are very popular in the corporate world to safely protect client information and keep company data and future goals private from the external environment. NDAs help an individual or businesses safeguard their data. Apart from this, non-disclosure agreements are also popularly used when hiring an employee, contractors, or consultants, while selling businesses or seeking potential investors, and while discussing the details of an invention or new idea.

Purpose of the NDA Contract

The purpose of an NDA is the heart of the agreement. You will be giving or receiving confidential information in connection with a specific transaction like a deal, sale, or investment, so it is essential that you make it clear that you are sharing the sensitive information for only that specific purpose and not for more general use. 

The main goal of a Non-Disclosure Agreement is to ensure that information isn’t disclosed publicly. So, its main purpose is to protect sensitive information, and patent rights and to state what information is to be classified as confidential to avoid future confusion.

Why are Non-Disclosure Agreements important?

NDAs are important as it can protect and safeguard your interests. During the process of negotiations, it can help build trust and act as proof or evidence of the recipient’s obligation. It is most important because it allows you to control the way your confidential information is used and prevents the theft of intellectual property. 

Exclusions from Confidential Information

Not everything can be classified as Confidential Information. There are exclusions clauses that define what is not protected by the NDA. This can include information that is already out in the public, information that has been authorized by the disclosing party to allow the receiving party to share with prior written consent, information that the other party had before the NDA was signed, Information that was discovered or formed by the recipient on their own.

Common Non-Disclosure Obligations and Clauses

The core of a Non-Disclosure Agreement is the obligations included in it. These should outline the obligations of the Receiving Parties to the Disclosing Party. It will comprise multiple clauses each covering a certain topic. Some of these are:

Non-Disclosure of Transaction: the Receiving Party agrees to not share details of the transaction being discussed or negotiated.

Non-Solicitation: in the case of hirings, either party can prevent the other from soliciting or employees or diverting business away from the other party.

Non-compete: signing parties agree not to get into direct business activities if it competes with the other party.

Non-Circumvention: in cases where the Disclosing Party is sharing important business contacts, a non-circumvention clause helps ensure that the Receiving Party will not bypass the agreement and directly engage in business with the contacts.

The time period for confidentiality in Non-Disclosures: NDAs can be set in ‘perpetuity’ which would mean that they run effectively forever. It’s much more common thought to set an expiration date of either the period of the transaction (plus some time afterward for example 6 months) or for a fixed term for example 2 years. After this time, confidential information is destroyed, returned (less common in a digital world), or erased.
Importance of the definition of confidential information: This is naturally very important. You must spend time getting this right – it may even be necessary to itemize specific data if it is very complex or if information needs to be shared but not in full. A Non-Disclosure Agreement needs to be very specific about defining what confidential information is.

What happens if you break a Non-Disclosure Agreement?

Breaching the terms of an NDA is a serious breach of your confidentiality obligations under the agreement. NDAs are important legal agreements that parties sign to protect valuable IP and trade secrets. The breach is taken very seriously and you must take all suitable steps to safeguard the information you receive and ensure your team does the same. A Non-Disclosure Agreement helps any organization maintain confidentiality and privacy. A data breach could damage future goals and business plans.

Zegal’s NDA template will help protect your sensitive data. We also have lawyers on hand who can help you get the correct legal information when you need it.

What situations or circumstances might make an NDA unenforceable?

Non-Disclosure Agreements are legally enforceable. However, the enforceability will mostly vary according to jurisdiction. Further, there are instances where a court may determine and declare that a non-disclosure agreement is unenforceable. Few situations and circumstances when this can happen are:

Use of restrictive and broad language. If the NDA does not have a limited or well-defined scope or duration, it can be deemed unenforceable.

If the information is not confidential: if any information is public knowledge and has been widely discussed, an NDA might not uphold in such cases.

The request is illegal: If the agreement is used to bound someone to do something illegal, an NDA will not be valid.

Apart from these, there can be other cases where NDAs become unenforceable.

Conclusion

NDAs uphold the confidential relationship between two parties, so one or both parties are obliged to not share the agreed-upon information. These are uncomplicated legal documents that are also legally binding. It is used by organizations as well as individuals to protect their businesses and personal information. NDAs should be as detailed and as specific as possible.

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