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What is a Non-Disclosure Agreement?
A non-disclosure agreement, often abbreviated to NDA or called a confidentiality agreement, is a legally binding contract between two or more parties. It gives details of some sort of confidential knowledge, information or materials which the parties wish to share among themselves, but which they wish to keep private from third parties.
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Reasons for Using A Non-Disclosure Agreement
A NDA is used to create a legal contract between two or more individuals. It is based upon both trust and secrecy. The contract is drawn up to prevent a third party from getting hold of trade secrets of company information which could give them some sort of competitive advantage.
If you fail to get involved parties to sign up to this sort of agreement, then there may be an adverse impact on your business, such as not being able to register a patent for a new product.
Confidentiality can be agreed verbally or implied by the way the various parties behave, but this sort of agreement is much harder to prove and therefore isn’t something that should be relied on. You’re much better off with a properly drafted written NDA – which are surprisingly inexpensive.
A formal written confidentiality agreement or NDA is one of the best ways to protect your company’s secrets as it gives you the right to sue for damages in the event that the NDA is broken.
Who needs a NDA or Confidentiality Agreement?
NDAs are needed when two or more individuals, companies or other organisations are thinking of going into business together, or when negotiation over the terms of such a relationship begins. This could include talks over licensing intellectual property or the drawing up over a contract for distribution.
These sorts of negotiations could involve parties talking about confidential information such as :
· Sales and marketing figures
· Formulas or recipes
· Drawings or technical designs
· Any similar information which could give an advantage to one of the parties if it were disclosed to a third party.
Some companies even ask employees to sign a NDA, depending on the type of business.
At what stage should a NDA be discussed?
In an ideal world, the NDA should be signed by all parties before any secret information is discussed. Sometimes, a NDA is drawn up to take account of any information which was disclosed before the NDA was signed.
Typical components of a Non-Disclosure Agreement
Any NDA has to be put together carefully to make sure that the obligations of each party who signs are clearly laid out. The first thing to define is what constitutes confidential information, and also to state equally clearly what, if any, information is excluded from the NDA agreement.
The agreement also must state how the parties should deal with the confidential information. Clauses dealing with any time limit on the NDA, what happens when the agreement is terminated and what happens if the contract is breached are also commonly included.
If the NDA covers parties from different countries, it must also state which law and jurisdiction covers the agreement.
NDA’s and joint ventures
An NDA in these circumstances enables both parties to be aware of the facts but confident that the other party will not disclose confidential information to a third party.
Two types of NDA – which is right for me
In very general terms, there are two varieties of NDA;
- 1 way NDA – where only one party shares information
- 2 way NDA – where both parties share information
If you are involved in confidential negotiations or you are disclosing secret information the release of which could harm your business, don’t take chances and cut corners – make sure you have a an NDA drafted to fit your particular circumstances.