A non-disclosure agreement (NDA), also known as a confidentiality agreement, is basically a legal contract that is meant to protect a company’s proprietary information. It is usually signed when two individuals or companies are getting into a business deal that involves disclosure of such information. You can hire a lawyer to draft your NDA or simply use of one of the non-disclosure agreement templates available online.
When is a confidentiality agreement required?
- When seeking funding – When approaching lenders or investors for funding, you need to think about the kind of information that will be shared during negotiations. If you have to disclose sensitive business information such as your intellectual property portfolio, marketing strategies, manufacturing secrets or accounting books, then a confidentiality agreement should be signed by both parties.
- When sealing a deal with a new client – During the initial discussions, it might not be necessary to have any kind of agreement. However, when deal is being formalized, it is a confidentiality agreement will be necessary since information such as fees, parties involved and scope of the project will be shared
- When hiring independent contractors or new employees – Since employees and contractors are likely to be privy to confidential information, signing an NDA is very important. This should be done at the onset of the contract or employment
Sections of a non-disclosure agreement
Contrary to popular belief, confidentiality agreements don’t have to be complex and lengthy. Usually, a good contract should only be a few pages long. Here are the main sections of a confidentiality agreement:
- Mention of parties – The NDA should clearly identify the parties involved. In most cases, it is between the party receiving the information (recipient) and the party revealing confidential information (disclosing party).
- The definition of confidential information – The disclosing party should make it very clear the kind of information that is deemed confidential. At times, even oral information is included in this category
- Exclusions from the agreement – Every NDA should have exclusions such as information already known in public or that already known to the recipient prior to the agreement. Exclusion should also include situations where the recipient is required to disclose information in a court of law
- Duration of the agreement – The duration of the NDA will depend on the kind of information involved and the nature of your industry. In most cases, confidentiality agreements are valid for a duration of two to five years
How to handle breaches
If someone breaches the NDA and discloses your proprietary information, it could have disastrous consequences for your business. If you realize such a breach has occurred, you should immediately get a temporary restraining order to stop further sharing of the information. Afterwards, you could consider seeking damages for patent or copyright infringement, misappropriation of trade secrets, trespass or misappropriation of trade secrets.