You've probably heard of NDAs before, but there is still confusion around when you can use them. This article will help you understand when you need a non-disclosure agreement and the different types of NDAs to choose the right one for your industry and projects.
What is an NDA?
A non-disclosure agreement, also known as an NDA or a confidentiality agreement, is a legal agreement between the disclosing party of confidential information and the receiving party. The parties agree to enter into a confidential relationship with respect to the disclosure by one or each.
The disclosing party is the party that shares the confidential information, while the receiving party is the party that is privy to the confidential information.
An NDA prohibits the receiving party from disclosing confidential information of the other party or using it for their purposes during the confidentiality term. The type and format of confidential information can be detailed in an NDA, and the disclosure's purpose can be specific or broad. For example, an NDA might require confidential information to be explicitly labelled as confidential for it to be protected by the NDA.
If an NDA is breached by one party, the other party may seek court action to prevent further disclosures and sue the offending party for monetary damages.
What is a one-way NDA?
A one-way NDA (also known as unilateral NDA) should be used if only one party will disclose confidential information.
One-way NDAs are often used for potential partners, employees, and other people exposed to your company’s private dealings. One-way NDAs are also commonly used when engaging with investors.
For example, if you hire a consultant, you may have to share confidential information to obtain their advice or service. This would make you the disclosing party and the consultant a receiving party.
What is a mutual NDA?
A mutual non-disclosure agreement is used where both parties involved disclose sensitive information to each other. A mutual NDA should make the coverage of the agreement and the type of information covered clear, as well as define its start date and term. Like the one-way NDA, the forms of information should be made clear, the jurisdiction of the NDA, and it should contain a clause stating that the NDA doesn't grant either party rights to the other’s IP. Mutual confidentiality agreements are typically used by businesses.
Under a mutual non-disclosure agreement, the parties will agree:
- Not to use any confidential information for unauthorised purpose - authorisation must be in writing
- Not to disclose confidential information to third parties
- To keep confidential information secure
- To surrender all copies and records of confidential information on request by another party
Mutual NDAs are useful for potential mergers or partnerships in which both parties need to disclose confidential information, and therefore, both sides will be classed as the disclosing party. This is common when businesses want to work together on a campaign or discuss a potential partnership.
If you are interested in developing and launching a product or integrating with another company. A mutual NDA protects both your and the other company’s confidential information so you can work together without the risk of wrongful use or disclosure by either side.
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Which clauses should be included in an NDA?
When drafting an NDA, there are numerous clauses to include and clarify.
Identify the parties
Set out who the receiving party of the confidential information is in the NDA and the disclosing party. 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
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 proprietary information, 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.
Exclude certain material
The recipient may insist on certain topics which will not amount to a breach of the confidentiality agreement 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 of the parties
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 use reasonable efforts to safeguard the confidential nature of the disclosed information and 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 are 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
This clause should set out the term of the NDA, which means how long the disclosing party want the other party to withhold this information from the wider world, 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 regard 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 disclosing party if this is provided for in the non-disclosure agreement. Both parties can terminate the NDA by mutual consent.
Include a jurisdiction clause
The disclosing party 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. The governing law of NDAs on Legislate is England and Wales.
What is the difference between a non-disclosure agreement and a confidentiality agreement?
There is no real difference between an NDA and a Confidentiality Agreement as they both aim to protect confidential information from disclosure. Although the titles differ, the legality of the agreements remains the same.
How do I make a Mutual NDA?
An NDA can be created on a contracting platform such as Legislate by answering a few simple questions such as the term of the agreement, the use of the information and whether it should be a mutual NDA or one way. 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.