Non Disclosure Agreement

Definition 

In any kind of contractual agreement, business transaction, or any kind of deal between two parties there are often instances where some confidential information cannot be disclosed beyond the parties who are directly involved in the contract. The information which is already out to the public cannot be called confidential information. 

It is a legally binding agreement to keep secure sensitive information. The parties signing in the agreement agree to not disclose or give out information to others.

The Non-Disclosure Agreement is called by various names such as Secrecy Agreement, Non-Confidentiality Agreement, Confidential Disclosure Agreement, and Proprietary Disclosure Agreement. 

Situation Where Non-Disclosure Agreement lies 

Non Disclosure Agreements can arrive in various situations, especially 

  1. When two entities or companies enter into any business together but during that transaction, they want to keep some information like any plan or process which could be to themselves.
  2. When companies appoint their new employee, if the employee has a job role that will require him to get knowledge of sensitive information about the company then, the company may require the employee to sign a non-disclosure agreement.
  3. When a company requires funding, it might propose offers to probable investors. The invitation for an offer of investment might require some confidential information to be disclosed before the investors. Therefore, before such discussion between the probable investor and the company seeking funding a non-disclosure agreement is usually signed.

The consequences of a breach of NDA by one party entitle the other party to seek court action and prevent further disclosure of information and may also sue for monetary damages. Just like general contracts the remedies available to the party aggrieved should be mentioned in the agreement itself. 

Also read: When all agreements are contracts?

What kind of Information is protected with NDA?

The information protected in NDA (Non-Disclosure Agreement ) can be broadly ranged from manufacturing process strategy, sale plans, potential customers, marketing strategy, or software designs. 

  1. Customer Information This may include contact information, communication record, or even customer preference of major customers.
  2. Financial information-  This may include the cost accounting information, balance sheet, and account of assets and liabilities. 
  3. Intellectual property -This may include all kinds of intellectual property held by the company, be it software, patents, copyrights, or trade secrets.
  4. Marketing Strategies or Information – This may include advertising techniques, pricing strategies, and billing policies. 
  5. Operation Information – This will include internal information about the company’s operation. Employee data, payroll information, director’s posts, internal costing, supplier information, etc. 

Types of Non-Disclosure Agreements 

  1. Mutual Agreement – When two parties are partnering or going into any transaction or agreement, each of the parties may reveal such information which would aid the common objective. In such an event both parties agree on not disclosing the secretive information. 
  2. Non-Mutual Agreement – Where only one party receives the information thus it is a unilateral or one-sided prohibition from disclosing information. 
  3.  Merger and Acquisition (M&A) – There are a lot of changes that take place when companies consider going in for private or public M&A. It has been usually seen that it begins with signing an NDA as these will convey to the new parties to restrict one or the other parties from disclosing confidential information.
  4. Employer-Employee – Once employees are hired then they often are told to execute an NDA, which restricts the employee to disseminate company-owned information from time to time. 

The exception to Non-Disclosure Agreement 

The Disclosure Agreement – This is an exception to the genre of Non-Disclosure Agreement (NDA). There might be unavoidable or necessary situations such as any administrative body or government authority can demand to share of sensitive/ confidential information. Thus, those cases would fall under the exception category of Non-Disclosure Agreement because such disclosure would not amount to a breach of the agreement.  

Elements of Non-Disclosure Agreement 

  1. Participants in the Agreement

Firstly the parties or participants of every non-disclosure agreement must be specifically designated. The participants in the agreement can be individuals, employees, representatives of the company, a company, etc. A company should clearly define itself, the legal structure and ownership, etc.

  1. Definition of Confidential Information

The second most crucial clause would be defining the NDA, and what information would be considered to be confidential. It cannot be based on assumption, expectation, or generalization. It should be the company’s duty to clearly draw the lines around the information which are not meant to be shared. The party disseminating the information will have a broader definition because they are the ones benefiting the most from the agreement while the party receiving the information will have a narrow definition under this clause. 

  1. Exclusions of Confidentiality

This clause can be handy when the instant case would require to state/define the information which is not to be meant confidential. This makes things less complicated because the party/parties will have specific information which they can share or disclose. One of the advantages of this type of agreement is that the company will cover up the majority of its sensitive information and there will be fewer chances of it losing out on any essentials. 

  1. Appropriate Uses of Information

At times the information may be open and totally confidential but it may simply specify ways in which external parties may use it. For example, it may allow disclosing the operation process to another party, however with certain limitations such as the information cannot be shared with a competitor or benefit of personal finance.  

  1. Time Period

As much as early these agreements should be made, the agreement should also cover the time period within which the secrecy needs to be extended. Depending on the nature of the transaction the time period is decided, and it can extend from 1 year to 10 years. 

  1. Parties to Disclosure-

A non-disclosure agreement should also define with whom the party can share confidential information. For example, it can share confidential information with associated representatives, partners or companies. 

  1. How to Return the Confidential Information

It is important to specify in which way the received information by the receipt should be returned, for example, either by returning the document itself or destroying the whole information received by the recipient. 

  1. Other/Miscellaneous Provisions

Along with the above essentials, NDAs are open to customization. Different areas of business would have different requirements, agencies, and priorities which it may keep sensitive.  

Advantages of a Non-Disclosure Agreement

  1. Written Agreement reduces confusion and clearly states the confidential matter. 
  2. Legally binding parties to respect the other party/parties’ confidential information. The party infringing will be legally liable to pay compensation and damages. 
  3. Any dispute, if arises with regard to the confidential matter then it can be referred to the Arbitrator or the court.