The rise of the NDA and when to use them
Published on: 30th October 2019 12:10
When it comes to business, there may often be times when you work alongside third parties and need to share information or details that need to remain confidential. In these instances, it’s key to ensure that this remains the case and that the information shared is kept confidential between all parties involved, and that everyone respects the confidentiality of the details given so they are not used against the business or to the business’ detriment.
There is no statute that describes what confidential information is, but there is case law and this makes clear that although there are common law obligations of confidentiality, the information must have the necessary qualities of confidentiality about it, and it must be shared in circumstances where the reasonable person would or should know that it is confidential. So, not exactly clear-cut. It will be obvious in some circumstances but less so in others, and an easy way to address this uncertainty is to embed within a contract what the information is and what the parties expect of each other as regards that information.
There are a few options that businesses can take to ensure the privacy and confidentiality of details being shared between each party involved. One option in particular that that has seen continued rise in recent years is a non-disclosure agreement (NDA). Having an NDA in place when joining allegiances and establishing partnerships and agreements with third party organisations is key to securing the acceptance of confidentiality of any information, or details that are being disclosed between these parties, until otherwise stated.
They have always been a cornerstone of discussions involving intellectual property such as patents and know how where maintaining secrecy is key.
We have also seen these used extensively by celebrities and in the political world to keep secret information that would be damaging in the public domain.
But what actually is a non-disclosure agreement, why are they so important and when exactly should they be used?
Let’s take a look and find out:
What is a Non-Disclosure Agreement (NDA)?
A non-disclosure agreement, confidentiality agreement, or NDA as it is more commonly referred to, is an important and legally binding document that sets out to protect confidential or sensitive business information. They are put in place to prevent individuals from disclosing private data or sharing with external parties outside of the agreement. It’s a document that puts measures in place to protect the privacy and confidentiality of information and to prevent the misuse of that information.
In essence, an NDA is a contract between businesses and/or individuals whereby these parties agree to not disclose anything set out in the agreement. A non-disclosure agreement provides a confidential relationship between those who sign the contract to protect the anonymity of any type of confidential and proprietary information or trade secrets. The information will often be described broadly – such as all of the discussions between the parties, or may be more specific, such as when know how is being described so that information which could potentially be regarded as well known is specifically and contractually agreed to be confidential.
An NDA isn’t solely restricted to external parties when it comes to enforcing a confidentiality agreement. In many cases, organisations may wish to have their employees sign a clause which restricts them from the use and dissemination of company-owned proprietary and confidential information. Also in agreements between employer and employee on termination of employment will often have similar obligations of confidentiality. Equally, businesses may also choose to get external visitors to sign an NDA or confidentiality agreement when it comes to maintaining confidential information and keeping it within the four walls of the business. Instances such as events where trade secrets or upcoming products launches are being revealed are a prime example of when this may occur.
The importance of having an NDA in place
As more and more businesses look to protect their assets, and realise that putting in place an NDA is not a difficult or lengthy solution, NDA’s are on the rise. Implementing a confidentiality agreement is becoming a lot more common as organisations become savvy to keeping certain information, and intellectual property, private and secure.
As such, having an NDA in place is important as it helps to keep all of this firmly under wraps, and prevents anyone who has signed the agreement from unlawfully disclosing this information to another party.
A non-disclosure agreement can also be used to maintain a business’ competitive advantage by protecting proprietary information or trade secrets. They are also useful at keeping working projects, new innovative ideas or exciting new campaigns secret until they are ready to launch, so as to avoid any competitors getting sight of what your business is working on. This allows you to stay one step ahead of the game and maintain your business’ competitive advantage in the long run.
NDAs are also an essential part of any business negotiations including mergers, acquisitions and corporate takeovers.
Types of Non-Disclosure Agreements
The content held and documented within a non-disclosure agreement will differ for each individual contract set out. This is because it will set out confidentiality broadly and also refer to business specific information, proprietary data and other sensitive information that is specific only to the business in question.
However, whilst each and every NDA differs in some way, there are still two primary types of confidentiality agreements that can be used:
Unilateral Non-Disclosure Agreement
This is one of the most used types of non-disclosure agreement. It is more commonly used when one party consents to the agreement and agrees to not disclose any private, confidential or secure information to any other third party. A unilateral NDA is intended to protect one party’s assets, but not the other. Where the balance of power sits with one party this is often what you will see – but that should not stop you from asking for it to be changed to the other type:
Mutual Non-Disclosure Agreement
A mutual NDA is typically created when both, or all, parties involved in the agreement consent to not sharing or disclosing the other’s information of confidential data and assets. These types of NDA are more commonly used between two or more businesses who are looking to work and engage with each other as part of a joint venture that involves sharing protected communications and proprietary information.
It’s important to select the right type of agreement that is best suited to your business and each relevant party when it comes to implementing an NDA. This will help to ensure full compliance and understanding of the agreement and prevent any disclosure or misuse of confidential and private information being shared.
When to use a Non-Disclosure Agreement
So, we know what an NDA is, why it’s important to have in place and the different types of non-disclosure agreement that can be enforced. But just when should businesses use them? Here are a few examples of when a non-disclosure agreement should be used to protect yourself, your business and all relevant third-party stakeholders:
- When two or more parties are considering joining forces and need to understand the processes used in each organisation.
- Presenting a new invention or business proposition to potential partners, investors or distributors.
- When you are wanting to protect know-how including when you want to license it.
- Mergers, acquisitions and corporate takeovers when businesses will need to share financial data and other relevant information with prospective buyers.
- Events where third-party organisations and visitors may be informed of new product launches, or new technology innovations and need to prevent competitors from finding out.
- Showcasing new products and technology innovations to potential buyers or investors.
Hiring employees, contractors or businesses and needing them to keep trade secrets under wraps.
Receiving services from other businesses and individuals who may have access to your confidential information by providing their services to you.
Start-up companies with new and/or profitable ideas needing to keep their innovations secret until launching to market.
Providing employees access to confidential business and proprietary information during employment.
Maintaining competitive advantage and keeping working projects, new innovations and new products top-secret so as not to fall into the hands of competitors.
Of course, there are also many other occasions and instances when implementing an NDA would be highly beneficial and advantageous. On occasions it may be better to rely on secrecy – that means not disclosing information at all and particularly not in a written document. Some businesses prefer this to the risk that information that is difficult to protect in law, becomes known in the marketplace. How, when and why you decide to put an agreement in place is entirely down to you.
NDAs are an important legal framework used to protect sensitive, personal and confidential information from being disclosed or misused. Anybody in breach of a non-disclosure agreement will risk facing legal proceedings which could include an injunction, and a claim for damages if a party has suffered loss because of the breach.
If you’d like to get more advice and guidance of how to start the process, or need help implementing an NDA for your business, then we’re here to help. We can help you find the right advice for the right price – alleviating the pressure it places on you to find legal representation that does what you need, at a price that suits you, and ensures your information is protected as far as possible.