A non-disclosure agreement (NDA), also known as a confidentiality agreement, is a legal contract between two companies (or more) which outlines the confidential material or sensitive information that the parties wish to share with one another for specific purposes. The purpose of the confidentiality agreement is to protect information disclosed such that the disclosing party’s proprietary information will not be shared more widely or publicly than they intended. If the party recipient of confidential information breaches the terms of the agreement, the disclosing party can take legal action against them.
Confidentiality agreements can be one-way or mutual. A one-way confidentiality agreement (or one way NDA) is usually used if only one party is disclosing information and a mutual confidentiality agreement (or mutual NDA) is used if both parties are disclosing information.
In the course of business, it may become necessary to share confidential information or ideas with another party, such as a potential investor or manufacturer.
Businesses will therefore want to ensure that such material is shared in confidence through use of an NDA. Without an NDA, there is a risk that others may use the ideas or material owned by a company without its permission.
They can be particularly important for a company which needs to protect its trade secrets. Commonly food and drink companies guard their trade secrets closely, and only disclose recipes etc. to a handful of people – and that disclosure will be backed up by a strict confidentiality agreement. They are also very useful to any company which owns valuable intellectual property which they need to protect under a legal agreement before sharing it with the other party.
Confidentiality agreements are not just for tangible intellectual property rights or trade secrets, they can also be used to protect other commercially sensitive information – such as pricing or other financial information, customer lists, valuable ideas and so on.
Non-disclosure agreements are commonly used in sectors which create a lot of intellectual property rights, such as the IT sector or the manufacturing sector.
Businesses may be asked by other parties, such as their customers or a supplier , to enter into a non-disclosure agreement before they disclose information to them.
In such circumstances, businesses should check carefully the terms of any non-disclosure agreements which they are asked to sign. Businesses should seek professional advice if they are unsure about the obligations being placed on them.
It is important that a NDA does not unfairly restrict the activities of a business or place onerous burdens on a business that, in practice, they will not be able to comply with.
A confidentiality agreement typically follows a similar format. It should always be a written agreement and will usually include the following:
It is good practice to restrict the use of ideas and information to a certain permitted purpose. The purpose should be specified in the NDA and drafted as narrowly as possible to avoid future disputes.
The receiving party may need to share the confidential information with others, for instance, employees or professional advisors. It is therefore important that the NDA deals with this point and ensures that any such disclosures are made in confidence.
Every confidentiality agreement should specify how long the duty of confidentiality will last. It common for confidential obligations to survive termination of the NDA. Therefore, a confidentiality agreement will usually contain clauses specifying the duration of the agreement itself (i.e. over what period the the disclosing party (or parties) expect to share information. This is commonly a period of one to five years. It will then have a separate period
On termination of the NDA, the disclosing party will also want to ensure that there is an obligation on the recipient of the confidential information to return copies and records of the disclosed information.
If you need any advice on confidentiality agreements and NDA’s please contact a member of our corporate and commercial law team in confidence here or on 02920 829 100 for a free initial call to see how they can help.
To speak to one of our experts today, please contact us on 02920 829 100 or by using our Contact Us form for a free initial chat to see how we can help.
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