A Non-Disclosure Agreement (NDA) is a legal contract between at least two parties that outlines confidential materials or knowledge that the parties wish to share for specific purposes but are willing to restrict access to other parties. For example, in the event that another company adopts one of your products or services, then ceases negotiations, and subsequently tries to replicate your concept, it is of paramount importance to implement preemptive protective measures for your products, thereby mitigating the risk of encountering such unfavourable circumstances.
The NDA often includes what counts as confidential and proprietary information, how much time passes before the information becomes public knowledge, and what happens if the agreement is violated. However, like all contracts, an NDA will not be enforced if the contracted activities are illegal.
Types of NDAs
The most common three types of NDAs are:
- One-way NDA
In this type, one party discloses information to another, where only one party is restricted so as not to disclose the given or known information. A common example is the employment relationship, where the employee is solely responsible for not disclosing business secrets and information. One-way NDA is used when you have trade secrets or other confidential information that you want to share with another party but don’t want him to disclose to other parties. It is usually used when you hire a subcontractor, agent, or distributor.
- Mutual NDA
This is where both parties agree not to disclose each other’s confidential information without their consent. Mutual NDAs are primarily used in horizontal business relationships where the parties are willing to exchange information with another party and ensure that neither party will share the information with others.
- Three-way NDA
This type is similar to a mutual NDA except that here, two parties agree not to disclose each other’s confidential information, and both of these parties also agree not to disclose the third party’s confidential information without consent. These agreements are used when two parties are working together on a project and want to ensure that neither will disclose the confidential information of an investor or customer whom they’re working with. For example, a subcontractor is hiring a steel fixer to do repair work in a new mall.
The fundamental elements in drafting a solid None-Disclosure Agreement
1- Parties Involved
There are typically three limbs involved in a Non-Disclosure Agreement (NDA), the Disclosing Party, the Recipient Party and the Governing Body.
Disclosing Party: An individual or organisation who possesses information that they wish to protect from being disclosed;
Recipient Party: An individual or organisation receiving confidential information from the disclosing party; and
Governing Body: This can be either through the competent court or by way of arbitration. Both would have to decide whether an NDA has been breached if there is a dispute between parties.
The content of a Non-Disclosure Agreement
The Preamble
In a non-disclosure agreement (NDA), the preamble serves as an introductory section that sets the context and provides an overview of the document’s purpose and the parties involved. It is typically situated at the beginning of the agreement and aims to lay the foundation for the subsequent clauses.
The preamble usually includes the following:
- Identification of the parties;
- Purpose of the agreement: The preamble outlines the primary objective of the NDA; this could be in the context of business negotiations, joint ventures, mergers and acquisitions, or other collaborative efforts; and
- Background information: This is the set of information that helps to clarify the context of the agreement and ensures that both parties understand the rationale behind the NDA.
- It is important to note that the preamble does not generally contain legally binding obligations. Instead, it sets the stage for the more substantive provisions that follow. Therefore, the preamble helps establish a mutual understanding between the parties and ensures a smoother negotiation process.
Purpose and scope
The purpose and scope of a non-disclosure agreement (NDA) is a crucial section that would contain the following:
The purpose of the disclosure. The recipient should not use this information for any other purpose.
The scope of who may have access to the information. It is common to limit access to a small number of employees who need this information for their daily work and data processing.
The scope of what can be disclosed. Some agreements go into detail about what can be disclosed, such as only financials or only marketing plans, but others simply state that any confidential information shared by one party with the other is covered.
Duration/Termination
NDAs often require a party to keep the information confidential for a certain period, like three to five years after the agreement is signed or after the end of discussions between the parties, whether they enter into another contract together. In some cases, keeping the secrets of work confidential has an indefinite duration. Alternatively, an NDA can be terminated upon a specific event occurring. For example, it will be terminated if either party fails to notify the other party within 60 days after learning that the other party has breached any material term. Please contact AIO Legal Services for more information about how to draft a robust NDA.
Exclusions from Confidential information
Certain types of information are often expressly excluded from being considered confidential information. These exclusions are usually on the basis that the information is already in the public domain or that it is not specific enough to be confidential. Other exclusions may be negotiated between the parties and included in the agreement.
The following information is usually excluded from being deemed confidential in any NDA:
- Information that was known to the receiving party prior to disclosure by the disclosing party;
- Information disclosed by third parties who did not acquire or disclose the information by wrong means; and
- Information is independently developed by the receiving party without access to or use of the confidential information of the disclosing party.
Exceptions to the non-disclosure obligations
The confidentiality obligation usually is subject to certain exceptions. The NDA may specify the circumstances in which the party is permitted to disclose confidential information. For example, the NDA could state that a party can disclose confidential information in case of:
- A court or tribunal orders it;
- The law allows such disclosure;
- In the public interest to do so; or
- The disclosing party has authorised it.
A party may also be able to disclose if the information is:
- Already in the public domain;
- It was necessary to prevent a criminal act or serious damage to health and safety; or
- To make a protected disclosure under the Public Interest Disclosures Act 1998.
Remedies for breach of a non-disclosure agreement
As with any contract, if a party does not fulfil their obligation under the terms of the agreement, damages may result for the non-breaching party, in addition to several remedies are available to the non-breaching party, including:
Injunction. This remedy will be sought if it appears that one of the parties continues to disclose information after signing an agreement not to do so. In this type of order, the court will immediately prevent the disclosing party from doing so again.
Damages. Which is the money awarded to compensate for losses caused by the breach of contract. In this case, damages would be monetary losses resulting from the disclosure of confidential information. These can include lost profits, occurred loss or reputational harm.
Accounting of profits. An accounting of profits requires the breaching party to pay back any profits gained by disclosing confidential information. For example, if a business secret was disclosed and used by a competitor to make additional sales, those sales should be turned over to the claimant.
In conclusion, the drafting of a robust non-disclosure agreement is a critical step in safeguarding valuable confidential information and ensuring the successful outcome of sensitive negotiations or collaborative ventures. By adhering to best practices and incorporating the key elements discussed in this article, parties can create comprehensive NDAs that effectively protect their interests and minimise the risk of unintended disclosure.
AIO Legal Services possesses extensive knowledge and expertise in drafting bespoke non-disclosure agreements that cater to the specific needs and requirements of our clients. We recognise the importance of tailoring each NDA to the unique circumstances of each case and are committed to providing personalised legal services that maximise confidentiality protections.
Should you require assistance in drafting a non-disclosure agreement, we invite you to contact us immediately. Our dedicated professionals will work closely with you to understand your objectives and draft an NDA that aligns with your goals and offers optimal protection for your valuable information.