A non-disclosure agreement (NDA), also known as a confidentiality agreement (CA), confidential disclosure agreement (CDA), proprietary information agreement (PIA), or secrecy agreement (SA), is a legal contract between at least two parties that outlines confidential material, knowledge, or information that the parties wish to share with one another for certain purposes, but wish to restrict access to or by third parties. It is a contract through which the parties agree not to disclose information covered by the agreement. An NDA creates a confidential relationship between the parties to protect any type of confidential and proprietary
information or trade secrets. As such, an NDA protects non-public business information.
NDAs are commonly signed when two companies, individuals, or other entities (such as partnerships, societies, etc.) are considering doing business and need to understand the processes used in each other’s business for the purpose of evaluating the potential business relationship. NDAs can be “mutual”, meaning both parties are restricted in their use of the materials provided, or they can restrict the use of material by a single party. It is also possible for an employee to sign an NDA or NDA-like agreement with an employer.
In fact, some employment agreements will include a clause restricting employees’ use and dissemination of company-owned confidential information.
Types of NDA
A non-disclosure agreement may be unilateral or bilateral, that is, it may bind only one party or multiple parties (typically two):
- Unilateral NDA – A unilateral, or a one-way, agreement is where one party wants to disclose certain information to another party but needs the information to remain secret for some reason, perhaps due to secrecy requirements required to satisfy patent laws or to make sure that the other party does not take and use the disclosed information without compensating the discloser.
- Bilateral NDA – A bilateral, or mutual, agreement is where both parties will be supplying information that is intended to remain secret. This type of agreement is common when businesses are considering some kind of joint venture or merger.
A nondisclosure agreement can protect any type of information that is not generally known. However, nondisclosure agreements may also contain clauses that will protect the person receiving the information so that if they lawfully obtained the information through other sources they would not be obligated to keep the information secret. In other words, the nondisclosure agreement typically only requires the receiving party to maintain information in confidence when that information has been directly supplied by the disclosing party. Ironically, however, it is sometimes easier to get a receiving party to sign a simple agreement that is shorter, less complex and does not contain safety provisions protecting the receiver.
Some common issues addressed in an NDA include:
- Outlining the parties to the agreement;
- The definition of what is confidential, i.e. the information to be held confidential.
- The disclosure period – information not disclosed during the disclosure period (e.g., one year after the date of the NDA) is not deemed confidential;
- The exclusions from what must be kept confidential. Typically, the restrictions on the disclosure or use of the confidential data will be invalid if o the recipient had prior knowledge of the materials; o the recipient gained subsequent knowledge of the materials from another source; o the materials are generally available to the public; or
- Provisions restricting the transfer of data in violation of national security;
- the term and conditions (in years) of the confidentiality, i.e. the time period of confidentiality;
- the term (in years) the agreement is binding;
- permission to obtain ex-parte injunctive relief;
- description of the actions need to be done with the confidential materials upon agreement ending;
- the obligations of the recipient regarding the confidential information, typically including some version of obligations: o to use the information only for enumerated purposes; o to disclose it only to persons with a need to know the information for those purposes; o to use appropriate efforts (not less than reasonable efforts) to keep the information secure. Reasonable efforts is often defined as a standard of care relating to confidential information that is no less rigorous than that which the recipient uses to keep its own similar information secure; and o to ensure that anyone to whom the information is disclosed further abides by obligations restricting use, restricting disclosure, and ensuring security at least as protective as the agreement; and
- Types of permissible disclosure – such as those required by law or court order (many NDAs require the receiving party to give the disclosing party prompt notice of any efforts to obtain such disclosure, and possibly to cooperate with any attempt by the
disclosing party to seek judicial protection for the relevant confidential information).
- The law and jurisdiction governing the parties. The parties may choose exclusive jurisdiction of a court of a country.