A non-disclosure agreement (NDA), also known as a confidentiality agreement, is a legal contract where one party agrees not to share certain information with others. It’s typically used by companies when sensitive information is shared. For instance, in a lot of cases, when a company is working on a new product, before discussing any details, you’re asked to sign an NDA. If you break the agreement and share information about the product, the company could sue you. Keep reading to learn more.
What is an NDA?
A non-disclosure agreement (NDA) is a legally binding contract that ensures confidentiality between two or more parties. It’s used in business to share sensitive information such as trade secrets, business strategies, or intellectual property.
There are two main types of NDAs:
- Unilateral NDA—This type of agreement involves one party disclosing information while the other party agrees not to share it. It is often used when sharing proprietary information with employees, contractors, or potential business partners.
- Mutual NDA: This type of NDA is used when both parties share confidential information. It’s used in joint ventures or partnerships where both parties must protect their sensitive data.
Why Do You Need an NDA?
NDAs are essential for 2 reasons:
- They protect and prevent the misuse of sensitive information shared with employees, contractors, or partners. If that information leaks, it’s considered a breach of contract, which could have legal consequences, as stated in the NDA.
- They protect patent rights. Getting a patent can take a while. Publicly sharing details about an invention before it’s patented can cancel the chance to patent it. Signing an NDA keeps that information safe during development.
How to Draft an NDA for Your Business
While it’s always a good idea to consult with a lawyer, here’s a basic outline of what you should include in an NDA:
- Define Confidential Information
You need to identify what constitutes confidential information clearly. Typically, this would include business plans, client lists, marketing strategies, financial information, or any other details you consider sensitive. Be as specific as possible.
- State the Purpose of the Agreement
Why are the parties entering into this agreement? Are they sharing information for a potential business deal, partnership, or project? Clearly state the reason behind the disclosure.
- Identify the Parties Involved
The NDA should clearly identify all parties involved. This includes the person or organization sharing the information (the disclosing party) and the person or organization receiving the information (the receiving party).
- Set the Duration of Confidentiality
Establish how long the confidentiality obligation will last. Most NDAs last for a set period, even after the business relationship ends. A typical timeline would include one to five years, depending on the nature of the information.
- Exclusions from Confidentiality
There are situations where information can be excluded from the NDA, such as if it is already public knowledge or if the receiving party lawfully receives the information from another source. Be sure to specify what is not covered under the agreement.
- Outline Consequences for Breach
If the NDA is violated, you need to outline the consequences. What happens if the receiving party discloses confidential information? Most NDAs allow the disclosure party to seek legal action, including pursuing damages.
- Include a Non-Compete Clause (Optional)
In some cases, you may want to include a non-compete clause. This prevents the receiving party from using the confidential information to start a competing business or work with competitors.
- Specify the Governing Law
If a dispute arises, you need to specify which state or country’s laws will govern the agreement. This ensures that both parties know where any legal action will be taken if required.
Here’s a simple template you can use as a guide:
Note: We highly recommend consulting your lawyer to avoid any legal issues.
This Non-Disclosure Agreement (the “Agreement”) is made and entered into as of [October 31, 2024], by and between:
Disclosing Party:
[ABC Tech Solutions, LLC]
Address: [123 Business Road, Suite 100, City, State, Zip Code]
(“Disclosing Party”)
AND
Receiving Party:
[John Doe]
Address: [456 Client Avenue, Suite 300, City, State, Zip Code]
(“Receiving Party”)
1. Purpose:
This agreement protects confidential information shared by the disclosing party with the receiving party regarding [a potential partnership for software development.
2. Definition of Confidential Information:
For this agreement, “confidential information” includes:
- Business plans, strategies, and financial data
- Product prototypes and designs
- Customer lists and vendor contracts
- Marketing strategies
- Any other proprietary or confidential information shared during discussions
3. Obligations of the Receiving Party:
The receiving party agrees to:
- Keep all Confidential Information secure and confidential
- Use the Confidential Information only for the purpose outlined in this Agreement
- Not disclose the information to third parties without written consent from the Disclosing Party
4. Exclusions from Confidential Information:
Confidential information does not include information that:
- Is publicly available or becomes publicly known through no fault of the Receiving Party
- Was already known to the Receiving Party before disclosure
- Is disclosed to the Receiving Party by a third party who does not have a confidentiality obligation
5. Duration of Confidentiality Obligation:
The confidentiality obligations will remain in effect for [5 years] from the date of disclosure or until the confidential information is no longer deemed confidential.
6. Return of Materials:
Upon termination of this agreement, the receiving party agrees to return or destroy all confidential information provided.
7. No License or Ownership:
This Agreement does not grant the Receiving Party any rights, ownership, or license in the confidential information.
8. Legal Recourse for Breach:
The disclosing party may seek legal remedies, including injunctive relief, in case of a breach.
9. Governing Law:
The laws of the state of California will govern this agreement.
10. Entire Agreement:
This agreement constitutes the entire understanding between the parties with respect to the confidential information.
Signatures:
Disclosing Party: ________________________
Name: Jane Smith
Title: [CEO, ABC Tech Solutions]
Date: [October 31, 2024]
Receiving Party: ________________________
Name: [John Doe]
Title: [Software Developer]
Date: [October 31, 2024]
Best Practices When Using an NDA
- Be clear and specific. The more specific you are in the NDA, the less room there is for misunderstandings or legal disputes.
- Limit access to information. To minimize the risk of a breach, share confidential information only with people who truly need to know.
- Use an NDA as early as possible, preferably before discussing sensitive information with potential partners, contractors, or employees.
- Update your NDA regularly. This is especially important if your business evolves or the laws change.
Summary
An NDA is an effective way to protect your business’s confidential information. While you can create one independently, it’s a good idea to consult with a lawyer to ensure all the legal aspects are correctly covered.
Need help with legal matters? Consult with MC & J Law for IP litigation services in Orlando. Get in touch today.