If you’ve ever negotiated with or been employed by a company in a position where you learn about its inner workings, trade secrets, or employee or client data, you’ve likely encountered a non-disclosure agreement (also variously called an NDA, confidentiality agreement, confidential disclosure agreement, or CDA).
The confidential information of an organization is usually a vital business asset – most companies derive substantial value from their confidential information and data, both by having exclusive use of it in their own business, and by sharing it selectively with customers, suppliers, and others. Non-disclosure agreements are an important tool that can be used to protect a wide range of intellectual property and other sensitive information in a variety of situations.
Over the years, we have frequently encountered questions regarding non-disclosure agreements. In today’s blog post, we’re answering a few of the questions we’ve heard most often.
I trust the person I am working with ... Is a written agreement really necessary?
It’s possible that you might disclose private information to someone with an unwritten agreement not to disclose, and everything could turn out fine. However, in keeping with business law’s focus on risk mitigation, non-disclosure agreements are an easy and relatively inexpensive way to protect yourself against unexpected circumstances. A well-written NDA will give you documentation to rely on in the event of a dispute, and if clearly worded, can prevent many disputes from arising in the first place.
There are numerous reasons to enter into written confidentiality agreements, such as the following:
• Avoiding confusion over what the parties consider to be confidential.
• Setting expectations regarding treatment of confidential information between the parties, whether disclosing or receiving confidential information.
• Maximizing protection of trade secrets, because under state law this protection can be weakened or lost (deemed waived) if disclosed without a written agreement.
• Covering issues that are indirectly related to confidentiality, such as non-solicitation.
• Maintaining standards that are expected of most commercial relationships and transactions.
• Memorializing confidentiality agreements is often required under upstream agreements with third parties (for example, a service provider’s customer agreement may require written confidentiality agreements with subcontractors).
• Enforcing written contracts is easier than enforcing oral agreements.
What is the difference between a mutual NDA and a non-mutual NDA?
With a mutual NDA, both sides of the agreement are bound to keep one another’s information confidential. With a non-mutual (unilateral) NDA, only one party is accepting limitations as to what they can share with others. There can be variations of degree, depending on the primary direction of information flow. If you’re not sure which type of NDA is appropriate for your situation, an attorney can help you decide.
What is covered by a non-disclosure agreement?
The scope of what is protected will depend on the precise language of the agreement. The parties should carefully define what information is considered confidential, and the purpose of the agreement. Typical obligations regarding confidential information include restrictions on disclosure, access, and use, as well as safekeeping and security requirements. These will vary depending on industry sector and the parties’ wishes, and are some of the reasons it is important to draft NDAs with care.
Are they really worth the paper they are printed on?
Yes (in fact a great deal more). An NDA is a contract which is enforceable just like any other, and allegations regarding confidentiality breaches can and do occur, up to and including litigation.
Can I use an online form non-disclosure agreement?
It’s best to create your own custom non-disclosure agreement, rather than use a boilerplate online form. For matters of this importance, you want tailored terms that are as clear as possible, to prevent conflicts later on. Sitting down with an attorney to create your own non-disclosure agreement – or indeed any other contract – can save you a lot of hassle, heartache, and expense in the future. (It’s also advisable to do it as early as possible in a commercial relationship, preferably before any confidential information is disclosed.)
The Fonville Legal team is committed to providing our clients with the information and guidance they need to succeed in the business world. We take pride in helping make sure your non-disclosure agreements and other important contracts are clearly worded to protect your interests. If you have further questions about non-disclosure agreements, or if you’re ready to sit down with us to create one, we invite you to contact us today. We look forward to hearing from you.