When do you need an NDA?
You've probably heard of NDAs before but there is still confusion around when you can use them, and when they are even necessary. This article will help you understand when you need a non-disclosure agreement and the different types of NDAs so you can choose the right one for your industry and projects.
What is a non-disclosure agreement?
A non-disclosure agreement, also known as an NDA or a confidentiality agreement is a legal agreement between a discloser of confidential information and a recipient of that information. An NDA for prohibits the receiving party to disclose the confidential information or use it for their own purposes during the confidentiality term. The type and format of confidential information can be detailed in an NDA and the purpose of the disclosure can be specific or broad. For example, an NDA might require confidential information to be explicitly labeled as confidential for it to be protected by the NDA.
A one-way NDA (also known as unilateral NDA) should be used if only one party will disclose confidential information and a mutual NDA (also known as bilateral NDA) should be used if both parties are going to disclose confidential information. NDAs can also be used when there are two or more parties involved in the disclosure of confidential information.
Who should use non-disclosure agreements?
Any company or person that needs to disclose confidential information should use a non-disclosure agreement. For example, an NDA should be used by an inventor trying to protect their intellectual property, or by a hiring manager trying to protect sensitive information during an interview process. NDAs are often entered into with potential partners or new clients to protect confidential and proprietary information which needs to be shared in order to advance the business relationship.
When should you use use an NDA?
Non-disclosure agreements should be used before any confidential information is disclosed to the receiving party. Non-disclosure agreements can sometimes be retroactive but it's best practice to enter into one before making any disclosures to the other party. A receiving party can technically use information provided by the disclosing party if it is not protected by a confidentiality agreement. If both parties have already entered into a confidentiality agreement then it is important that the parties are aware of the purpose and confidentiality term of that agreement so that a new NDA can be created if ever the term has expired or a new purpose is required in order to reveal confidential information. If you are planning to file a patent for an invention, it is essential that any information related to invention is disclosed under a non-disclosure agreement.
When should you not use an NDA?
A non-disclosure agreement can only be used if the information which is going to be disclosed is confidential and not already in the public domain. Using a confidentiality agreement for public records will not hold up in court. Non-disclosure agreements should not be used if the information should be kept secret as the information can be disclosed after the confidentiality term has expired. For example, it is not beneficial to disclose secret recipes or certain trade secrets and know how as they can be core to a business' business model (e.g. CocaCola). In certain industries, non-disclosure agreements are not used in order to not restrict the receiving party's business opportunities. For example, potential investors such as venture capitalists won't sign an NDA prior making an investment unless it is to access protected information during the due diligence phase such as bank statements and other financial information. A non-disclosure agreement might also not be necessary when confidential information is already protected by a separate agreement such as an employment contract or a join venture agreement. In these cases, the confidential and sensitive information will have already been defined in these agreements.
How to create an confidentiality agreement
Creating confidentiality agreements swiftly is essential to further business opportunities whilst protecting a disclosing party' sensitive information and intellectual property. When creating an NDA, like with any legal contract, it is important to identify the parties involved in the agreement and the purpose of the NDA. The information covered by the purpose must be defined to protect the disclosure of any type of confidential information. The next step is for the two parties to agree on whether the agreement will be a one-way or mutual NDA and for how long the confidential information must be protected. The duration of the confidentiality term must be relevant to the industry and the nature of the information being disclosed. As a result, a confidentiality term can range anywhere between 3 and 10 years.
The opinions on this page are for general information purposes only and do not constitute legal advice on which you should rely.