The moment you wish to pursue a serious business relationship you are requested to sign a Non Disclosure Agreement more commonly known as an ‘NDA’. It is also known as a confidentiality agreement (CA), confidential disclosure agreement (CDA), proprietary information agreement (PIA), or secrecy agreement (SA).
In fact it is one of the most common pieces of document that you may come across in your business transactions. Be it as an employee, an investor, a start-up founder, or a professional an NDA is the starting point of sharing substantial information in a business relation. In today’s world of complex transactions it becomes all more important to keep a tab on the rights you hold over the information that you share.
With the advent of superior analytics and technology data has become the new gold and so is the value and liability with respect to it. Most common kind of information that people intend to secure in any such NDA is the client or customer data etc.
What is an NDA?
It is a legal contract between two or more parties that defines confidential material, knowledge, or information that such agreeing parties wish to share with each other for certain purposes, but wish to restrict access to or by third parties. It is a contract through which the parties expressly agree not to disclose information covered by the agreement except for specific reasons or in exceptional cases. An NDA creates a confidential relationship between the parties to protect any type of confidential and proprietary information or trade secrets. As such, an NDA protects confidential information that has been duly defined by the contracting parties to secure their interests.
You ought to be cautious when signing an NDA as like any other document it brings with itself rights and obligations.
You must consider Definition of Confidential Information, Obligations that you agree to, and Liabilities that you may incur in case of breach and Term of the confidentiality obligations while signing an NDA.
What information might have to be kept as confidential?
A disclosing party usually intends to make definition of confidentiality as exhaustive as possible. A standard definition may look like this:
The term “Confidential Information” means all business or technical information of Discloser, whether it is received, accessed or viewed by Recipient in writing, visually, electronically or orally. Confidential Information shall include, without limitation, technical information, marketing and business plans, databases, specifications, formulations, tooling, prototypes, sketches, models, drawings, specifications, procurement requirements, engineering information, samples, computer software (source and object codes), forecasts, identity of or details about actual or potential customers or projects, techniques, inventions, discoveries, know-how and trade secrets.”Confidential Information” also includes all such business or technical information of any third party that is in the possession of Discloser. Notwithstanding the foregoing, any information disclosed by the Parties will be considered Confidential Information of Discloser, only if such information (a) is conspicuously designated as “Confidential” or “Proprietary” or would reasonably be regarded as being of a confidential nature, or (b) if provided orally or visually, is identified as confidential at the time of disclosure, or would reasonably be regarded as being of a confidential nature.
The point of consideration in such a definition is what all it includes; if it requires to be marked as confidential at the time of disclosure and its mode of communication to the receiving party i.e. if it can be disclosed only in writing or orally or visually as well. It may also indentify any additional obligations of either party at the time of such disclosure.
Your Obligations and Liabilities
Your obligations define the exposure that you may carry during the term of the NDA. So you ought to be very cautious on avoiding an ambiguity in your obligations while signing an NDA. You must also practically assess as that how comfortably you can fulfill a certain agreed obligation under the NDA. Further you must also focus on any obligations that may restrict your business in any way.
Your liabilities emanate from your obligations. In case of breach of any of the obligations that you have agreed under the NDA you might be exposed to huge liabilities.
For example you may agree to return or destruction of any confidential information of the disclosing party at the time of term of the NDA or at the request of such party. However how will you destroy the confidential information stored on your servers? Will you be formatting your servers for complying with such obligations? Although technologically no information can be deleted in absolute except with physical destruction of any such storage device containing the confidential information which is technically impossible in case of clouds.
Term of Obligations
Another important aspect is the term of NDA. You must be very specific and clear about the term for which you can or you want the other party to sustain the confidentiality obligations. In certain cases a party may want all kind of or certain part of the confidential information to be kept as such till perpetuity which might not be a practicable proposition for the receiving party at various times. Beside these there might be defined exceptions wherein obligations of confidentiality may be done away with. Standard exceptions to confidentiality obligations may be when it was in public domain, if it was available without any confidentiality obligations and if it has to be disclosed under a statutory or court obligation.
At the end it can be stated that signing an NDA being the first stepping stone of any professional or business relation, thus it be should never be entered in haste. Alas, it’s important to read through any document before signing. In case of any confusion, you must seek a legal advice before signing a document.