Nondisclosure Agreement

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What Is a Nondisclosure Agreement?

A nondisclosure agreement — also known as an NDA, a confidential disclosure agreement, or confidentiality agreement — is a contract that prohibits individuals from sharing specific information with others unless they receive prior authorization. Nondisclosure agreements are common in business since they prevent employees from sharing sensitive information with competitors. An NDA can also prevent the release of sensitive customer or patient information and keep potentially damaging details away from the media.

Nondisclosure agreements can be applied to a variety of situations. Some examples of information that may fall under an NDA include the following:

  • Proprietary information
  • Trade secrets
  • Personal information
  • Private details regarding a sensitive event
  • Potential business licenses
  • Negotiations regarding a business partnership
  • Customer lists
  • Film or television scripts
  • Medical information
  • Financial information
  • Details about a property to be rented or purchased
  • Patent or invention details
  • Coding or design information
  • Marketing information
  • Product and service information
  • Production processes

Who Are the Parties Involved in a Nondisclosure Agreement?

A unilateral nondisclosure agreement involves two parties:

  • The Disclosing Party : This party is the person or entity disclosing the secrets. In many cases, the disclosing party is a business which is imparting confidential knowledge to an employee.
  • The Receiving Party : The receiving party is the individual who is learning confidential information and the person who is charged with maintaining confidentiality.

In a mutual nondisclosure agreement, known as a two-way NDA, both parties are simultaneously considered to be the disclosing and receiving parties. This arrangement happens when two entities agree to an exchange of information. Each one provides confidential details to the other while both agree to keep the information private.

Parts of an NDA

A nondisclosure agreement typically includes the following details:

  • Definition of confidential information
  • Exclusions that are not considered confidential
  • Detailed obligations for the receiving party
  • The time period covered by the nondisclosure agreement
  • Relationships impacted by the agreement
  • Severability of the agreement
  • Integration of the agreement into other proposals, representations, or agreements
  • Waiver
  • Notice of immunity (optional)

What Does an NDA Cover?

An NDA agreement should clearly define information protected under a contract. The receiving party will want this definition to be as specific as possible to avoid inadvertently sharing potentially sensitive details. While you can make the definition of confidential information fairly broad, you cannot include:

  • Information that was known to the receiving party prior to the execution of the agreement
  • Information that's public knowledge
  • Research developed independently by the receiving party
  • Details that were disclosed to the receiving party by another individual outside the scope of the NDA

Image via Flickr by AFGE

Additional Clauses for a Nondisclosure Agreement

Termination Clause

If the nondisclosure agreement lasts only for the duration of the relationship between the two parties, you will include a termination clause. This clause states that the protections offered by the nondisclosure agreement are no longer in effect upon the date of the contract's termination. Additionally, the clause will detail how one party notifies the other of termination. One may need to give notice within a certain period of time. When the termination date occurs, the NDA is no longer valid.

Survival Clause

A survival clause will prevent the termination of the agreement. This clause states that the restrictions set forth by the NDA remain in place beyond the term of the agreement. The agreement does not necessarily leave the confidentiality in place indefinitely. A confidentiality clause typically survives for two to four years after the termination of the agreement.

Noncompetition Clause

A noncompetition clause prevents the receiving party from starting a competing company or taking confidential information to a direct competitor, an important inclusion in many NDAs. You should note, however, that the noncompetition clause will not prevent the receiving party from taking a job with a competitor. The nondisclosure agreement simply limits the information that the receiving party may share with a competitor.

Nonsolicitation Clause

A nonsolicitation clause stops the receiving party on the NDA from recruiting employees of your business. If you share valuable information with a potential partner or investor, the individual may want to hire employees from within your workforce by knowing that these individuals have similar knowledge that might make them especially valuable. A nonsolicitation clause will help protect your workforce from potential competitors.

Types of Nondisclosure Agreements

Nondisclosure agreements can be used in many settings. While many are executed on behalf of a business, you might also use a nondisclosure agreement to keep your information safe if you're sharing potential ideas for an invention or showing someone your coding and design secrets.

Think ahead when you're sharing valuable information. Although you may only use the information recreationally at the time of disclosure, you will want to keep these details private if you believe you could profit from them in the future. You might choose to sell your award-winning recipe for salad dressing to a condiment manufacturer or patent your new product creation. Without a nondisclosure agreement, anyone who knows about the details of your project could build a business off of them.

Some types of nondisclosure agreements that one might execute include the following:

  • Business plan NDA : Protects your proposed business plan when sharing it with potential investors
  • Business sale NDA : Pertains to potential licenses, joint ventures, mergers, investments, and other discussions related to the sale of a business
  • Real Estate NDA : Sets agreement terms between a landlord and potential tenants or buyers
  • Customer List NDA : Safeguards the details of a sensitive customer list when sold by a business
  • Employee NDA : Secures business information shared with employees
  • Independent Contractor NDA : Prevents independent contractors from sharing private business information disclosed to them during the course of a project
  • Software Beta Tester NDA : Prohibits software details from being released early by testers
  • Film NDA : Ensures details on a script are not shared with the public before a film's release
  • Visitor NDA : Prevents visitors to a facility from sharing what they see while touring the property
  • Patent NDA : Keeps the concept for an invention safe when others are collaborating on a project for which a patent will be filed

Enforcing an NDA

Besides protecting your information, an NDA ensures that the disclosing party is eligible for relief if the information is disclosed. A nondisclosure agreement typically ensures that the disclosing party can receive injunctive relief if the receiving party shares sensitive information.

An injunction is an order issued by a court that restrains someone from beginning or continuing a certain action. In the case of an NDA, the injunction will either stop the party from releasing the information at all or demand that the party ceases sharing sensitive information.

The nondisclosure agreement can also provide the disclosing party with monetary relief from the receiving party. The receiving party may be ordered to compensate the disclosing party for any losses incurred when the information was shared. If an NDA is in place, the disclosing party can sue for any information leaked either intentionally or through negligence.

A nondisclosure agreement is a valuable tool in any situation where you're sharing information that you want to keep private. Protect your intellectual property and sensitive operations information by creating a nondisclosure agreement between you and your employees or those with whom you do business.

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