When should you use a Non Disclosure Agreement (NDA)?
A non-disclosure agreement (NDA), often referred to as a confidentiality or a secrecy agreement, is a legal contract between two or more parties outlining knowledge and/or information that the parties wish to share with one another but wish not to have accessed by third parties.
By signing the document the parties agree not to disclose information that it contains. An NDA creates a confidential relationship between the parties to protect any type of sensitive material such as details of trade secrets – it prevents the dissemination of company or project-specific information that, if leaked, could be damaging for one or both of the parties involved. It usually prevents the signing party from benefiting commercially from the information.
NDAs are commonly signed when two companies are considering doing business with each other and need to exchange information to benefit the partnership. A mutual NDA restricts both parties in their use of the materials provided; alternatively, an NDA can also exclusively restrict the use of material by one of the individuals or groups involved.
Employers often request that an employee signs an NDA or a similar form of contract when he or she commences employment, or a new assignment, in order to maintain confidentiality.
An NDA incorporates various basics – the details of the parties who must adhere to the agreement and the information to be kept confidential (often including items such as unpublished patent applications, financial information, customer lists, discoveries and business strategies). When drafting an NDA it is important to include the disclosure period in the contract.
Those writing the NDA should note that if the recipient had prior knowledge, obtained legally, of the matters contained within the NDA - or if the contents are publically available - the signatory cannot be held liable for dispersing the material. Similarly, if the materials are subject to a subpoena or a court order, this would override the contract.
The NDA should have a clause that forces the signing party to return or destroy the confidential information where the project or assignment is abandoned or when they no longer need access to the information.
Breach of the NDA is a serious offense – when this occurs the information owner can apply to court to have an injunction put in place to stop future breaches – Often it is too late at this stage as the damage has already been done. A second option here is to sue the party at fault for damages suffered by the breach. The consequences of breaching the NDA should be set out in the NDA and should include loss of profit as well as loss of reputation and costs and expenses caused by the breach. It is important to remember that Court proceedings can be a long and arduous process.
It can be extremely difficult to prove that an NDA has been breached but if a breach is proven, this can provide the basis for a claim. Given that it is not always possible to prove that an NDA has been breached some people do not rate them – however, at the very least the NDA holds some value in that it clearly sets out in writing what is expected of the parties to avoid any ambiguity and NDAs also serve as a reminder of the confidential nature of the information and act as a deterrent.
