Why use an NDA and what clauses should one contain?
Why use a Non-Disclosure Agreement (NDA) in the first place? Parties may enter into negotiations regarding potential partnerships, collaborations or for the purpose of investment. In contracts of sale a seller may wish to keep certain information between them and a prospective buyer. In contracts where services are provided the client may wish their worker not to disclose any sensitive details they have gathered from the relationship.
Depending on the flow of information, there can either be “one-way” NDAs, where only one party is disclosing confidential information, or “mutual” NDAs, where both parties are disclosing confidential information to each other.
To be enforceable, a one-way NDA has to also serve the interests of the recipient. For example, keeping information confidential will also serve the interests of a potential investor if they wish to invest in the business.
Which clauses should be included in an NDA?
When drafting an NDA there are numerous clauses to include and clarify.
- Identify the parties - who’s concerned?
Set out who the recipient of the confidential information is in the NDA. If the NDA is being made with an intermediary company, it should still make reference to the individuals in question who might be expected to receive the confidential information. Include the full names of any individuals, the registered name of the company if applicable, its address, and its registration number. This should be included to ensure that every intended recipient will not be able to escape the confidentiality obligations, making enforcement easier.
- Define confidential material - what are you trying to keep under wraps?
This clause should set out all the information considered to be confidential. Being as specific as possible will make the NDA less ambiguous and therefore easier to enforce. Obligations of confidentiality should encompass the information deemed valuable, such as manufacturing processes, customer lists, trade secrets, business plans, financial metrics and technical data. Defining the confidential material will make enforcement much easier before a court.
It is also worth including a clause which disclaims the accuracy or completeness of any confidential information. This states that the information is provided "as-is” and is not a representation.
- Identify the purpose of disclosure - on what basis does the recipient need the information?
The NDA should restrict the use of the ideas and information concerned to a specific permitted purpose. For example, a company director might want to share their confidential business plan with a developer to help them design their website to better specifications. A stated purpose will help a court assess whether the NDA is reasonable with regards to its obligations and duration.
- Exclude certain material - what’s unnecessary?
The recipient may insist on certain topics which will not amount to a breach of the NDA, and would be too burdensome to enforce. This would include information already in the public domain; information directly disclosed before the NDA; and information otherwise lawfully acquired beforehand.
- Clarify the obligations on the parties - what is the ideal dynamic?
Any non-disclosure NDA should spell out what confidentiality looks like. This clause should tailor how the party is obliged to abide by the NDA. The core of confidentiality is twofold: the party has to keep the information secret; and they have to take reasonable steps to prevent others from having access to those secrets. Obligations can include: not using or exploiting the confidential information in any way except for the purpose; not recording the confidential information except as strictly necessary for the purpose; not transmitting it in any form or by any means outside its usual place of business; and not directly or indirectly making available any confidential information in whole or in part to any person. These sorts of duties ensure that the security and integrity of the discloser’s venture is not compromised.
The NDA can also cover obligations regarding materials prepared by or on behalf of the recipient which contain, reflect or are based on the confidential information (“Secondary Information”). It can stipulate for example that such materials must be destroyed periodically.
In order to protect ownership over the information, the NDA can state that the agreement to supply information does not grant the recipient or any other party any licence, interest or right in respect of any intellectual property rights.
- Clarify the duration of non-disclosure - how long?
This clause should set out how long you want the party to withhold this information from the wider world for, and backdate the period of effectiveness. The term of a non-disclosure agreement should be reasonably related to the type of information protected, and the length of time confidentiality can be reasonably expected. Depending on the industry, you may be able to enforce confidentiality for longer periods of time. Where technology changes rapidly so as to render the information worthless, a court will enforce an NDA for only a short period. If the NDA sets out a long period of time with regards to the information, it will be deemed excessive and unenforceable. However, in the right circumstances an NDA’s duration can reach up to 10 years.
If your company discloses confidential information without having the NDA agreed to first, ensure that the NDA applies retroactively by setting the effective date as the date on which confidential information was first disclosed, not the date on which the agreement was signed.
Before the term comes to an end, the NDA can be terminated by the discloser if this is provided for in the non-disclosure agreement. Both parties can terminate the NDA by mutual consent..
- Include injunctive relief clause - how to directly enforce this NDA?
Injunctive relief means that the discloser is able to obtain a preemptive court order preventing the information from being spread. A clause can entitle a party to apply for an injunction to prevent the other party disclosing, or continuing to disclose, the confidential information. It can also clarify that damages for breach will be claimed simultaneously.
- Include a survivor clause - how to outlast intervening events?
This helps extend obligations beyond the expiration of the NDA. For example, If sensitive information is being conveyed to a company which later ceases to exist due to bankruptcy, the discloser can still require that confidentiality remains a requirement for the individuals involved.
- Include a jurisdiction clause - where to make enforcement possible?
The discloser can require that enforcement of the NDA will be governed by a particular legal system. This will ensure that they have selected a jurisdiction they are able to readily access in cases of potential disputes or breaches of confidential information.. Equally, it is worth researching the level of disclosure prohibited by NDAs in other jurisdictions in order to choose the one which offers the most protection, lending an advantage.
What is the difference between a non disclosure agreement and confidentiality agreement?
There is no real difference between an NDA and a Confidentiality Agreement as they both aim to protect confidential information for disclosure. Although the titles differ the legality of the agreements remains the same.
How do I make an NDA?
An NDA can be created on a contracting platform such as Legislate by answering a few simple questions and choosing its key terms. The NDA can be signed and sent to the other party to sign on Legislate as well. Unlike getting templates online, Legislate guarantees NDAs which are up-to-date with the law, lawyer-reviewed and simple to understand. You can read our tutorial on NDAs.
The opinions on this page are for general information purposes only and do not constitute legal advice on which you should rely.