When organizations look to enhance their operations by layering in new systems or processes, and engage outside parties to perform these tasks, one of the first considerations remains to have the parties sign a Non-Disclosure Agreement, or NDA. An NDA is a contract through which parties agree not to disclose information covered by the agreement, most often sensitive information, and creates a confidential relationship between the parties to protect any type of confidential and proprietary information or trade secrets being disclosed outside of the parties.
Nondisclosure agreements are one of the best ways to protect trade secrets, which are considered valuable confidential information that businesses want to keep under wraps. This type of information can range from financial results, sales plans, list of customers, a manufacturing process or a formula for a particular product. By employing a nondisclosure agreement, organizations can ensure that their information stays secret, and at best, they have legal recourse if they are misused or disclosed to the wrong parties.
NDAs are often categorized as either "mutual" or "one-way." A mutual NDA is one in which both parties are exchanging confidential information -- for example, you provide sensitive financial, customer and marketing information about your organization to a company for the evaluation and creation of a new marketing research application. A one-way agreement is typically used when only one party is making a disclosure -- for example, when you provide this information to an investor solely for their funding of a project. Most nondisclosure agreements are entered into with an employee where he/she promises to protect the confidentiality of a secret that is disclosed to him or her during the course of their employment, or during another business transaction. If that individual later uses that information without proper authorization, a request can be made to a court to stop the person from violating the nondisclosure agreement. Additionally lawsuits can also be brought against the offending party for any damages that were suffered as a result of the breach of confidentiality, such as lost revenue or market share. NDA's are typically reciprocal in nature and cover both parties' interests and grew dramatically during the time that the high-technology field was growing.
Considerations for using a mutual Non-Disclosure Agreement should be considered if your organization plans to share proprietary information with another person or organization, or if you will be given access to proprietary information that belongs to another person or organization. This can occur if you and a business partner are working with shared ideas that you need to protect, or maybe your dealings with an outside business or consultant involves proprietary information. A Mutual Non-Disclosure Agreement serves as a useful tool for organizations or individuals to protect a product idea or business plan before it has been fully developed. A NDA is not the only way to create a confidential relationship. Another option is to create a confidential relationship with an oral agreement, or it can be implied from the conduct of the parties, however these relationships are much more difficult to prove than a relationship based upon a written agreement.
There are five important elements to consider when drafting a nondisclosure agreement:
1. Definition of confidential information – this is a list of the types or categories of confidential information to be protected in the agreement. The purpose is to establish the boundaries, or subject matter, of the disclosure, without actually disclosing the secrets
2. Exclusions from confidential information - information excluded from protection. This represents the fact that the party that receives the excluded information has no obligation to protect it. Exceptions in this case are based on established principles of law with the most important one being that the information is not protected if it was created or discovered by the receiving party prior to (or independent of) any involvement with the disclosing party
3. Obligations of receiving party - generally means that the receiving party must hold and maintain the information in confidence and limit its use. Most state laws state that the receiving party cannot breach the confidential relationship, induce others to breach it, or induce others to acquire the secret by improper means
4. Time periods covered - require that the receiving party maintain the secret information for a limited period of years, and,
5. Miscellaneous provisions - sometimes known as "boilerplate" language; these are included at the end of every agreement and can include items such as which state's law will apply in the event the agreement is breached, whether arbitration will be used in the event of a dispute, or whether attorneys' fees will be awarded to the prevailing party in a dispute
So remember, when engaging outside resources to assist your organization in the development of any product or process, always ensure that you're organizations assets are covered appropriately by having a solid NDA in place.
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