Looking to enter into business with someone but worried information you possess will be disclosed and no longer be your secret? Have no fear, an NDA is here! A non-disclosure agreement (NDA), also known as a confidentiality agreement, can be used to protect confidential information from misuse or disclosure by others. In the course of doing business with someone it can be difficult to avoid disclosure of confidential information, and in order for both parties to perform their duties to the best of their abilities, disclosure may be essential. But the best business rule is this: have an NDA signed before you disclose confidential information!

 

There are many benefits and advantages for using an NDA:

 

1)  The most obvious advantage of an NDA is protecting your information! An NDA agreement allows you to agree on what information can and cannot be disclosed to others; what each party’s obligations are in regards to the confidential information; and how information is dealt with upon termination of the NDA.

 

2)   An NDA agreement can allow parties to define what “confidential information” is, so that it is clear to both parties throughout their relationship what is considered confidential and what subsequently cannot be disclosed. What type of information can be considered ‘confidential’ is endless, and it can include anything from patent ideas, test scores, employee information, passwords etc. Setting out what is included as confidential information can save a lot of time in the event a dispute arises and a lawsuit is brought, as the judge can see whether the information disclosed is specifically listed or described in the NDA. Drafters of the NDA can be as precise as they wish when defining what is confidential in their agreement by including an exhaustive list of specific items. Others will want a broader, non-exhaustive list which may include language such as “all information disclosed in the course of fulfilling the purpose of the agreement”.

 

Drafters can also include exceptions to the prohibitions on disclosure such as information that is generally available to the public; information obtained by a third party who is not bound by any confidentiality agreements; where information is trivial; information developed for the recipient independently; information disclosed through no fault of the recipient party and information that was already known by the party before signing the NDA.

These exceptions are common in NDAs.

 

3)    A well-drafted NDA will outline the consequences for those that breach the NDA, which will likely include a hefty monetary fine. The party that breached the NDA can also be subject to a court order preventing them from continuing to disclose any confidential information that was protected by the NDA.

 

4)  An NDA assures parties that information will remain confidential, and can include survival provisions requiring the party to not disclose the confidential information for a stated time period (eg. 2 years) after their relationship has ended.

 

Takeaways:

  • If you are considering a business deal, try to have the other party review and sign an NDA before entering into business discussions and possibly exchanging confidential information. The sooner the better!
  • Pay close attention to the definition of confidential information before signing an NDA, so you are clear what information (of yours) is protected, and what information (of the other party) cannot be disclosed to others.

 

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