What is a Non-disclosure Agreement?
Are you looking for ways to best protect your company’s confidential information and trade secrets from unpermitted disclosure? Perhaps you should engage your lawyer and make sure that you have a well-executed non-disclosure agreement (NDA), also called a confidentiality agreement (CA).
An NDA refers to a document which protects confidential information, proprietary information, or trade secrets from being disclosed to third parties, especially competitors who would benefit from the information.
Whether you wish to protect your intellectual property or a trade secret, you first need to download a free non-disclosure form specific for your state then you can fill it out with all the details required to make an executable NDA. But, before we look at the elements of a complete NDA, there are other things you should be aware of first.
What is a trade secret?
The simplest explanation of a trade secret is just that, information that should be protected for trading purposes. But, for the protection of that information, the statutes recognize trade secrets as information; device, process, program, compilation, technique, method, formula, recipe, software, which gives the owner of the information a competitive advantage because the information is unknown to others. A trade secret is also defined as information that is treated in a specific manner reasonably expected to keep the information away from the public, media, and competitors.
Parties to an NDA
Receiving party: this is the individual or organization that is made aware of confidential information and expected to keep the information a secret.
Disclosing party: this refers to the person who divulges the secret. Often, the disclosing party has ownership/ authorship rights to the information.
Types of NDAs
The protection of trade secrets and other forms of confidential information can be done using either unilateral /one-way NDA or bilateral/ mutual/ two-way NDA.
The unilateral NDA refers to a contract that binds one party (the receiving party/ recipient) from disclosing the information regarded as confidential unless they are permitted to. It’s common with employers and employees or vendors and clients.
The bilateral NDA, on the other hand, is the contract signed by two parties expected to protect the trade secrets of the other. The bilateral NDA is common with businesses or partners wishing to share confidential information. It’s also common in mergers, collaborations, and other joint ventures.
Elements of an executable/ legally binding NDA
Disclosure/ identification of the confidential information: if you wish to create a legally binding and an executable NDA, naming the parties involved or indicating that the recipient is to protect is ‘Confidential’ is not enough. You must outline the specific details of the information regarded as confidential. To this end, you ought to shy away from general phrases like business secrets because lack of specificity is a loophole that makes it hard to prove that the information has been breached. You don’t have to write pages describing the confidential information but if it’s essential in the identification of the information or covering all your bases, do it.
Outline the obligations of the receiving party: this is easily the second most important part of your NDA, after the identification of the confidential information? Why? It explains the things that the receiving party can do with the information and also what they are not permitted to do with the information. The obligations include:
Non-disclosure of the confidential information to third parties without the express direction of the disclosing party
Restricting access to the confidential information and to reveal only relevant details to persons on the need to know basis like consultants working with the recipient; note that in some cases, the third parties have to sign some form of NDA as well.
The receiving party cannot use the confidential information for personal gain unless the disclosing party permits him/ her.
The receiving party will, however, be expected to reveal the details of the confidential information if compelled by the government or the court, say through the issuance of a subpoena.
The receiving party is also obligated to return all the material relating to the NDA and the confidential information when the term of the NDA expires or when requested by the disclosing party in writing.
Timeframe: the NDA must have a term during which it is in effect. There should be an indication of how long the NDA will run from the Effective date (the date that the parties sign it). You could select a specific time period during which the NDA will be in effect, the date the NDA will expire, or in some cases, the binding power of the NDA could be indefinite. Note, however, that the duration of the NDA must be reasonable.
Exclusions: this is the part of the NDA outlining the information that is not regarded as confidential. Excluded information includes information that is available in public, information from third parties, or information that the receiving party obtains independently.
What happens when an NDA is breached?
As long as the NDA is deemed reasonable by the court, the party guilty of the breach might be sued for damages and ordered to pay the lost profits, or they could receive a court-ordered injunction notice forcing them to stop further release of the information. In most cases, the plaintiff gets both monetary and injunction relief.
When can you use non-compete or non-solicitation agreements/ clauses?
Non-compete and non-solicitation clauses are common in employment setups where the employee is forbidden from working for the direct competition, stealing customer/ client lists or even starting their own companies as direct competitors for their former employers. These restrictions are time and geographically restrictive for the courts to implement them.
To get started in protecting your company’s trade secrets, get our free non-disclosure agreement forms available online in all states.