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.
How to create a Non Disclosure Agreement (NDA)
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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.
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).
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.
- What is NDA and why do we need it?
A non-disclosure agreement (NDA) is a legal contract that is used to protect confidential information shared between two or more parties. Its purpose is to prevent unauthorized disclosure of sensitive information, such as trade secrets, business plans, or other proprietary information. If a party needs to share confidential information with another party in order to evaluate a potential partnership, investment, or other business opportunities, an NDA will be needed. By signing an NDA, the parties involved agree to keep the information confidential and not to use it for any unauthorized purpose.
2. What are the types of NDA?
There are several types of non-disclosure agreements (NDAs) that can be used to protect different types of confidential information.
- Unilateral NDA: Also known as a one-way NDA, this is used when one party is disclosing confidential information to another party, but the second party is not sharing any confidential information in return.
- Mutual NDA: also known as a two-way NDA, is a type of agreement that is used when both parties are sharing confidential information with each other. It is often used in business negotiations, where both parties want to protect their own confidential information while also gaining access to the other party’s confidential information.
- Simple NDA: This is the basic and most common form of NDA which has a simple and straightforward language. It’s mostly used by small businesses and individuals.
- Employee NDA: This type of NDA is used to protect confidential information when an employee is hired, or when an employee leaves a company. It protects the company’s confidential information and also prevents the employee from disclosing the company’s confidential information to competitors.
- Partner NDA: This type of NDA is used to protect confidential information when two or more parties are entering into a partnership or other business relationship. This type of NDA is used to protect the confidential information of each party, and also to prevent the unauthorized use or disclosure of confidential information by the other party.
3. What information is protected by NDA?
The kind of information protected by an NDA can vary depending on the specific terms of the agreement. Generally, NDAs are used to protect confidential information, that is not known to the public and holds value for the same reason. For example, NDAs can protect trade secrets such as unique specifications or compositions of a product, special manufacturing processes, or even proprietary algorithms. It can also be used for business plans, technical information, and proprietary information which gives companies a competitive edge.
4. How long does NDA last?
NDAs have a defined term. However, the length of time that an NDA remains in effect can vary depending on the specific terms of the agreement. They are usually in effect for the period of time during which the parties are bound by the terms of the agreement. NDA’s can have specific provisions that set a specific date on which the NDA will expire. For example, an NDA may have a term of three years, after which the agreement will no longer be in effect. However, NDAs can have a “perpetual” term, which means that the agreement will remain in effect indefinitely or until it is terminated by one of the parties. Perpetual term NDAs are not common and generally used only in situations where confidential information is considered extremely valuable and will always be considered confidential. However, the length of the NDA should be reasonable and cannot be restrictive.
5. Can an NDA be broken? If so, what are the consequences?
A non-disclosure agreement (NDA) can be broken if either of the parties involved fails to uphold their end of the agreement as it will be considered a “breach of contract. The consequences of breaking an NDA can vary depending on the specific terms of the agreement and the laws of the jurisdiction in which the NDA was signed. In general, the consequences of breaking an NDA may include:
Injunctions: A court may order the party that broke the NDA to stop disclosing the confidential information, or to take specific actions to prevent further disclosure.
Damages: The party that suffered harm as a result of the NDA being broken may be entitled to monetary damages. This can include compensation for any losses suffered as a result of the breach, as well as any profits that the breaching party made as a result of the disclosure of the confidential information.
Criminal penalties: In some jurisdictions, the unauthorized disclosure of confidential information may be a criminal offense.
Legal fees: The party that broke the NDA may be responsible for paying the legal fees of the other party.
It’s important to note that breaking an NDA can also have serious consequences for the reputation of the party that broke the agreement, and can have a significant impact on their ability to do business in the future. Further, if an NDA is part of another agreement, such as an employment contract, it can lead to the termination of the agreement or termination of employment too.
6. Can an NDA be customized?
Yes, NDAs (non-disclosure agreements) can be customized to meet the needs of the parties involved. The terms and conditions of an NDA will always vary depending on the nature of the information being protected and the parties involved. For example, an NDA between a software development company and a client will have slightly different terms than an NDA between two business partners. However, the core of it will mostly remain the same.
7. How do you make sure an NDA is legally binding
A complete legally enforceable NDA will have the following features:
- Clear identification of the parties with names and addresses.
- Clear definition of what constitutes ‘confidential information’. What information is being protected and how it is being protected should be mentioned.
- Include a time period and specify the length of time that the NDA will be in effect.
- Include an exclusions clause as some information may be excluded from the NDA, such as information that is already in the public domain.
- Include a governing law clause. It should be defined which law governs the NDA in case of any legal disputes
- Include a remedy clause and specify the legal remedies that will be taken in case of a breach of the NDA.
- Obtain signatures from all parties.
8. What are some common misunderstandings about NDAs?
- You can use the same NDA for all purposes.
- NDAs have to be drafted according to the nature of the confidential information being protected and the parties involved.
- NDAs last forever.
- NDAs only offer protection as long as they are in effect. They have a specific time period which is usually defined in the agreement.
- NDAs protect all information.
- NDAs only protect confidential information, which is defined and agreed upon by the parties involved; which is why it is important to clearly define confidential information to ensure that it is adequately protected.
- Only big companies use NDAs.
NDAs can be used by companies of any size and in any industry.
- NDAs cannot be shared with third parties.
- NDAs can be shared with third parties if it is agreed upon by the parties involved in the NDA.
9. How can an NDA be used to protect intellectual property?
NDA (non-disclosure agreement) can be used to protect intellectual property (IP) by preventing the unauthorized disclosure of confidential information related to the IP. When used with other legal tools such as patents, trademarks, and copyrights, an NDA can help to safeguard a company’s IP assets.
- Patents: NDA can be used to protect the details of an invention that is covered by a pending patent application.
- Trademarks: It can be used to protect unregistered trademarks such as trade names, by preventing unauthorized use of these marks by third parties.
- Copyrights: It can protect copyrighted works, such as software code, by preventing the unauthorized reproduction or distribution of these works by third parties.
NDA can be used to protect IP, it is not a substitute for patents, trademarks, copyrights, or other legal protections. An NDA can help to keep the IP confidential and protect it from unauthorized use and disclosure, but it cannot prevent others from independently creating similar IPs or prevent unauthorized use or infringement of already registered IP.
10. Are there any alternatives to an NDA?
The following are alternatives or have similar features to an NDA (non-disclosure agreement) that can be used to protect confidential information:
- Confidentiality agreements (CA): These are similar to NDAs as they are used to protect confidential information. However, a CA typically focuses on one specific instance of disclosure, such as during a business transaction, while an NDA can be used for ongoing relationships.
- Proprietary rights agreements (PRA): PRAs are commonly used in the software development industry to protect source code and other forms of IP.
- Non-circumvention agreements (NCA): NCAs are commonly used in the business-to-business context to protect trade secrets and other confidential information.
- Non-competition agreements (NCA): Non-competition agreements are used to prevent individuals from using confidential information to compete with their current or former employer. This type of agreement usually puts restrictions on an employee’s ability to work for a competitor after leaving their current employer.
Employee Invention Assignment Agreement (EIAA): An EIAA is used to ensure that an employee’s inventions and intellectual property developed during the course of their employment are assigned to the employer.
It’s important to note that each of these alternatives comes with its own specific legal requirements and limitations.
11. What are the pros and cons of NDA?
- Protection of confidential information: NDAs can be used to protect a wide range of confidential information, such as trade secrets, intellectual property, and business plans.
- Legal recourse: In the event of a breach, an NDA can provide legal recourse, such as the ability to seek injunctive relief or monetary damages.
- Deterrence: The existence of an NDA can deter potential breaches by making it clear that confidential information is protected and that legal action will be taken in the event of a breach.
- Flexibility: NDAs can be customized to suit the specific needs of the parties involved, and can be used in a wide range of situations.
- Differs according to jurisdiction. NDAs can get difficult to enforce, especially if the confidential information is widely known or if the parties are located in different jurisdictions.
- Limited protection: NDAs can only protect confidential information and cannot prevent others from independently creating similar information or prevent unauthorized use or infringement of already registered IP.
- Limited duration: NDAs have a specific time period and the protection lasts only as long as the NDA is in effect.
- Misunderstandings: If the NDA is not clearly written and understood by all parties, it can lead to misunderstandings and disputes.
A non-disclosure agreement (NDA) prohibits the unauthorized disclosure of confidential information. If one of the parties involved fails to uphold their end of the agreement, it is known as a “breach of contract” and there are legal consequences for it depending on the laws of the jurisdiction in which the NDA was signed. There are several types of NDAs and they can be customized to meet the specific needs of the parties involved.
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