What is the difference between a non-disclosure agreement (NDA) and a confidentiality agreement?
Very little, and in fact, they are sometimes both known as secrecy agreements or propriety information agreements.
The terms are frequently used interchangeably, but technically, an NDA is an agreement involving third parties, while a confidentiality agreement is signed by members of an existing workforce. This article will refer to NDAs for the sake of clarity.
What exactly is an NDA?
An NDA is a legally enforceable contract used to keep information confidential by prohibiting signatories to the agreement from disclosing that information. NDAs are required to keep sensitive information secret and out of the public domain, particularly out of the hands of competitors, customers, the media or, sometimes, your employees.
They could prevent intellectual property or lists of customers from ending up in the hands of competitors. Or they can protect information related to a new invention yet to be patented.
An NDA might be required before the launch of a new product, the commencement of a business agreement or when disclosing plans to potential investors. They can also come in handy during the sale of a commercial property, where it is necessary to disclose sensitive information to a potential buyer.
Confidentiality agreements are essential as they set out what can and can't be shared before negotiations begin so everyone knows where they stand.
What are the different types of NDA?
The two main types of NDA are unilateral and mutual/bilateral.
A unilateral NDA is the most commonly used and operates on the understanding that one party will not share information with another. A mutual NDA, on the other hand, promises that two or more parties will not disclose each other's confidential information to outsiders.
What does an NDA usually include?
- A clear title stating that it is an NDA.
- A clear statement of the receiving party’s obligations. The NDA must clearly state that the person(s) signing the agreement must not share or disclose the relevant information.
- A clear definition of the nature of the confidential information and any exclusions that may apply – for example, if the company is ordered to do so in court, or if a designated employee needs to disclose information about a patent to a manufacturer so that production can begin.
- Time periods also need to be clearly set out, such as the date the NDA comes into effect. NDAs require that signatories remain silent on the matter for a specified period of time, which is usually up for negotiation.
- NDAs usually state that once the information enters the public domain, it ceases to be confidential.
NDAs are legally enforceable and, if breached, can be used to claim damages or recoup lost profits. The presence of an NDA acts as a strong deterrent as it provides written evidence of each party's agreement to keep confidential the classified information in question.
What are the limitations of an NDA contract?
Any information already deemed to be common knowledge or in the public domain will not be covered. This includes any data the other party can access from an outside source.
How should an NDA be finalised?
At the end of the document there should be a section for signatories containing the names and addresses of all businesses. The NDA needs to be signed by somebody with the authorisation to do so.
It is possible to use email with electronic signatures but this is not recommended. A hand-signed document is preferable as it is easily identifiable and, therefore, provides a higher level of security and written evidence. Each party should keep a signed copy of the agreement.
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