In business, there are numerous instances in which you want to share the confidential information with another party. But the important things while doing so safely is to make sure that the other party is bound to respect the information you provide them and not use it to your detriment.
One general way to protect the secrecy of your information is through the non-disclosure agreement which is sometimes referred to as the “Confidentiality agreement”.
When does the Non-disclosure Agreement (NDA) make sense?
There may be many probable instances where it may be appropriate for sharing. But the general situation is when you wish to convey something valuable about your business or idea. At the same time, you want to ensure that the other side not steal or use the information without your approval.
Here are some typical situations where you may want to use a non-disclosure agreement:
- Presenting an invention or a business idea to an investor or distributor and a potential partner.
- Sharing the marketing, financial and the other tricky information with a prospective buyer of your business in order to attract them.
- New product or a technology will be shown to a prospective buyer or licensee.
- Services can be received from a person or a company who has an access to some sensitive information in providing those services.
- In some cases, the employees may have access to some proprietary information of your business during the course of their jobs.
NDA doesn’t make any sense in the case of start-ups which tries to raise the funding from the venture capital investors, as most of the capitalists would not sign for such agreements.
What is the difference between mutual and non-mutual NDAs?
NDAs usually come up with the two basic formats. One is Mutual NDA and the other one is One-sided agreement. In the one sided agreement, the sharing is from only one side and the other side doesn’t reveal any confidential information whereas in the mutual agreement potential sharing of confidential information is from both the sides.
If you are not ready to receive any information from the other side you need to let the other side know that you don’t want to receive any confidential information, so you may not be in any mutual form.
Key elements of non-disclosure agreements:
Non-disclosure arguments don’t have to be a long and a complicated one. In fact, the good ones would not be more than a few pages long.
- Identifying the parties.
- Definition of what is deemed to be confidential.
- Terms and conditions of the agreement.
- Scope of the confidentiality obligation by the receiving party.
- Exclusion from the confidential treatment.
Parties to the agreement:
It is a straight forward description which has been set forth at the beginning of the contract. If in agreement, only one side of party is providing the confidential information, then that one is referred as a disclosing party and the one who simply receives the disclosed information is referred as the recipient.
The important thing to consider is whether any people or companies be a party to the agreement. Is the recipient expecting to show the confidential information to a related or an affiliated company or to a partner or to an agent? If so, the agreement needs to cover all those third parties.
What is deemed certificate?
This section deals with defining what confidential information means? Is the information which is marked in writing as confidential? Can oral information conveyed be considered as confidential?
In the disclosing side, the confidential information need to be furnished as broad as possible to make sure that it doesn’t contains any loophole and start using their valuable secrets.
Being a recipient of the information, you may have some legitimate desire to ensure that the information which you are supposed to keep as secret should be clearly identified so that you can know what to use and what not to use.
Oral information is something tricky to deal with. Some recipients may insist that the information conveyed in the form of writing only need to keep confidential. The party who gives oral information may say that this is too narrow. Usually for compromising the oral information can be deemed as a confidential information but the disclosing party need to confirm to the other side in writing something shortly after it has disclosed so that in the receiving side can be now on notice as to what oral statements are deemed confidential. They could differentiate the things.
Scope of the confidentiality obligation:
The core of non-disclosure agreement is a two part obligation on the receiver side. Since they need to keep the confidential information and also they shouldn’t use the confidential information.
First part is that the recipient of the confidential information has to keep that secret and usually it means that he needs to take some necessary steps to not let others access it. For example, on the recipient side only few people from that company should have access the information by informing them about the confidentiality nature and restriction.
The other part is so crucial that the recipients couldn’t use any information by themselves. If the scope of the agreement is broad enough, then he can sue for damages or even stop the recipients from breaching their confidentiality obligations.
Exclusions from the confidentiality treatment:
Every NDA has certain exclusions from the obligation of the receiving party. This exclusion is mainly to address the situation where it would be burdensome for the other side to keep the information confidential.
The common exclusion information is:
- Disclosed to the recipient by some other party who has no responsibility about the confidentiality to the disclosing party.
- Recipient who develops independently without the reference to or use of the confidential information of the disclosing party.
- Already know to the recipient.
- Already publicly known.
NDA can also deal with the situation in which the recipient of the information may force to disclose the information via legal process.
Terms of the agreement:
How long should the NDA last? Some attorneys may argue that NDA could last forever. But why should someone have the right to use your so called confidential information at any time? If you are a recipient of information, you probably want to insist the definite terms about agreement ending. After all, mostly all the information becomes useless anyway after certain number of years and the cost of policing, confidentiality obligations can become expensive if it’s a forever obligation.
The scope may differ from industry to industry since after few years the information you conveyed may be worthless because of the changing and the trending technology.
Most agreements may have a time limit of up to two to five years. But your NDA needs to say that even after the term got ended, the disclosing party isn’t giving up any rights that it may have under patent, copyright or other intellectual property laws.
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