Non-Disclosure Agreements (NDA) (also commonly known as
Confidentiality Agreements) are used in a variety of business
relationships. Some circumstances where the parties may wish to
enter into an NDA are as follows:
Employment relationship: a prospective employee, independent
contractor or consultant to a business may be asked to sign an NDA
as a condition of being hired.
Joint ventures: two companies considering doing business with
each other will want to protect any confidential information that
they share with each other during their business relationship,
especially in the event that the relationship breaks down or
Supply, distribution or franchise relationship: a business that
relies on third party vendors, suppliers, distributors,
sub-contractors or franchisees who will have access to trade
secrets or other types of confidential information often requires
the other party to enter into an NDA.
Here are some key things to think about when you are negotiating
What's protected and what isn't?
A critical question to ask when negotiating an NDA is what is
defined as 'confidential information'? There isn't a
'one size fits all' answer. Rather, the parties should
ensure that the definition of confidential information in any
particular circumstance accurately describes all the types of
information that may be regarded as confidential. This also
includes giving consideration to the manner in which such
information may be communicated by one party to another. For
instance, is it necessary for information to be labelled
'confidential' to be regarded as confidential information?
What about information that is communicated verbally? It is equally
important that the parties give adequate consideration to the
definition of information that might be excluded from being
regarded as 'confidential information' as well as the
various circumstances in which use or disclosure of the
confidential information is permitted. In order to avoid any doubt
arising from each of these matters, the parties should ensure that
they are clearly explained in the NDA.
Who is bound by the NDA?
Often parties fail to consider who they intend that the NDA will
be binding upon and whether or not the NDA can be enforced against
certain persons. Generally the contracting parties may also be
obliged to ensure that there is no misuse or disclosure of
confidential information by employees, agents, subsidiaries,
sub-contractors and the like. Whilst it is unlikely that an NDA can
be enforced against someone who is not a direct party to the NDA,
including such a clause in the NDA acts as an important reminder to
recipients of confidential information that they are responsible
for the actions of parties to whom they disclose information.
How long does it last?
It is recommended that an NDA does not contain a timeframe to
limit the period that parties are required to be bound by the
confidentiality and non disclosure obligations. It is preferred
that the non disclosure and confidentiality obligations should
continue to survive for as long as the confidential information
remains confidential in nature. Generally speaking this would mean
that the obligation to maintain confidentiality should continue
until that information comes into the public domain.
What happens if there is a breach?
Ordinarily an NDA will set out the rights of a party in the
event of a breach of the NDA by the other party. This may include a
right to compensation by way of damages or perhaps court-ordered
intervention. However, what many people fail to consider before
entering into the NDA is the practical difficulties that may arise
when it comes to enforcing their rights against the party in
breach. It is essential to consider the jurisdiction that will
govern the interpretation of the NDA and where a dispute will be
resolved in the event of a breach. Also, it is important to
consider the identity of the contracting parties. For instance, how
you will go about enforcing your rights against a party in breach
if it is a foreign entity with no local assets. Whilst it is not
impossible to commence legal proceedings in another jurisdiction or
to sue a foreign entity, this can be extremely difficult and costly
so it is important to be aware of possible enforceability issues at
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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