To maintain their competitive edge, businesses are required to develop innovative products, ideas and services on a regular basis. These acts of innovation would be left in vain if third parties are able to replicate them simply because crucial information was exposed. . To prevent such losses, a Non-Disclosure Agreement (NDA) would come into play. Let’s take a look at what an NDA does and discuss the important details to look out for in one.
What exactly is a “Non-Disclosure Agreement”?
An NDA is a legally enforceable contract that adheres both parties to a “confidentiality maintenance” of the information in play. The fundamental purpose of an NDA is to ensure the privacy of sensitive information. There are no limitations in regard to the category of information that may be secured by an NDA, therefore it is entirely up to the creator of the NDA to determine the specifics of the information that should be safeguarded.
Key points to look out for in an NDA
When signing an NDA, it is crucial to be well-versed with its details. In short, here are 6 pointers to keep an eye out for:
1. Parties to the Agreement
The parties to the agreement usually comprise of 2 signing parties, the disclosing and the receiving party. It is important to have the name and contact of both parties in the agreement. In some cases, there might be more than 2 parties. An example would be if the recipient is an investor, he/she may need to share such information with their accountant, legal counsel, or business associates. The NDA will also bind these various third parties, and the importance of having their name and contact is also emphasised.
2. Identifying Confidential Information
It is important to know what information is and is not protected before signing an NDA.. This is what the agreement’s “scope” refers to. Many companies utilise NDAs to internalise sensitive data like client lists, employee records, financials, invention details, and trade secrets.
Typically, the disclosing firm prefers a broad scope, this might not be entirely fair to the receiver. . Examples of information that should be exempted from disclosure would be information that an employee already had before beginning work at a company or that a potential investor was aware of prior to reading a business plan.
In essence, anything that was already common knowledge, independently developed or revealed prior to the NDA can and should be left out.
3. Reparation of Identified Information
After the parties’ business has been concluded or an employee leaves a position, the agreement requires the confidential information to either be returned to the disclosing party or destroyed. The receiver is often required to verify that this criterion has been fulfilled.
4. Time duration
The duration of the agreement’s validity should be clearly stated in the contract; it is commonly over a period of several years, sometimes even lasting after the parties’ business has concluded.
5. The Obligation of the receiver
The recipient of confidential information typically agrees in an NDA to not disclose or use said information for any reason, whether deliberate or accidental.
An example of an accidental disclosure of confidential information would be if you’re considering to invest in a video game and have been given early access to the game’s beta version to test it out. If you play said game on the subway while it is in view of other passengers, that can constitute as a violation of the NDA. Another example would be if an employee of a technology firm was testing a prototype of a cell phone and accidentally left it at a coffee shop, the individual would also be in breach of the NDA.
6. Miscellaneous points
An NDA includes other common contractual clauses, such as but not limited to:
- Applicable Laws and Jurisdiction
- Confidentiality and Liability Limitations
- Restrictions on the Ability to Assign
Conclusion
Having an NDA is an easy and affordable way to conduct business without having the fear of confidential information falling into the hands of competitors. However, no contract is any good if you don’t have a fluent understanding of it.
Whether you are the discloser or the receiver of confidential agreement, it is of utmost importance to be aware of the details of the NDA you are involved with to protect yourself from the consequences of a potential breach.
Please note that this article does not constitute express or implied legal advice, whether in whole or in part. If you require legal advice, please contact us at: info@silvesterlegal.com.
