A Non-Disclosure Agreement (often referred to as an “NDA” for short) is a legal agreement used to prevent someone from disclosing information about another person or company. Outside of the legal world, you often hear about NDAs in the context of wealthy or famous people keeping their personal lives private, so they may not come to mind in the context of building a new app or talking to a potential investor.
However, in the business world, NDAs are often a critical first step in significant business deals. It’s important to understand exactly how NDAs work to make sure your interests are protected before sharing your company’s proprietary information.
What kind of information can NDAs protect?
NDAs are designed to protect private, confidential information from becoming public. In the business context, NDAs are usually used to protect trade secrets (like processes, formulas or other internal things you wouldn’t want your competitors to copy) or ideas that are still in the works (like business plans, designs for a new product or code for a new app).
NDAs are also used to protect the terms of a business deal that’s still being negotiated. (You may have also heard of “confidentiality agreements” – while this term is more common for keeping the terms of a business deal private, the two terms are generally used interchangeably.)
The key takeaway here is that the information has to be private. Once a piece of information becomes public, a non-disclosure agreement can no longer protect it. (Different types of legal tools are available to protect public information you don’t want others to copy, like protecting your intellectual property).
What’s typically included in an NDA?
The contents of a non-disclosure agreement depend entirely on what you’re using it for. As with most contracts, there’s a great degree of flexibility in how an NDA can be drafted to ensure that it works perfectly for the situation you’re using it in and the type of information you want to protect.
That being said, NDAs typically follow a similar format, with the contents of each section tailored for your particular business needs. Most NDAs consider the following:
Parties to the agreement
This may seem straightforward, but which specific people or entities are parties to the agreement has legal considerations. For example, signing in an individual capacity versus signing on behalf of a company affects how many people the non-disclosure agreement extends to and the consequences for breaching the agreement.
The types of information considered confidential
Depending on the types of information being revealed and whether one party is revealing confidential information (referred to as a “unilateral NDA”) or both parties are revealing confidential information to each other (a “bilateral NDA”), what’s considered confidential may not be the same for both parties.
It’s also important to strike a balance between being broad enough to cover all of the types of confidential information a party will share, but specific enough to ensure the non-disclosure agreement is enforceable.
Each party’s rights and obligations
Similarly, the confidentiality obligations may apply differently to different parties, depending on who is sharing what and whether the NDA is unilateral or bilateral.
Exceptions to the confidentiality obligations
Most NDAs carve out exceptions for certain situations where you may need to share confidential information, such as discussing it with your lawyer or complying with a legal requirement to share it.
For some types of information, the confidentiality obligations don’t need to last long – information that’s only going to stay private temporarily (like a product launch) or that won’t be nearly as valuable down the road (like fast-changing technology.
Other types of information need to stay confidential much longer (like trade secrets). The balancing principle applies here too, to make sure the duration is long enough to achieve the desired protection but not so long that it’s unenforceable.
Remedies for breach of the NDA
One of the most important considerations in an NDA is what should happen if a party wrongfully reveals confidential information. Remedies are supposed to make up for the consequences you would suffer if your confidential information were disclosed, so the right remedies will depend on the potential consequences.
When should I use an NDA?
The core benefit of NDAs is protecting your proprietary information. Any private information that you believe is valuable to your business should be covered by non-disclosure provisions. Whether an NDA is necessary depends on the type of deal you’re making and whether you need to reveal confidential information before the deal is finalized.
You should be thinking ahead – English law allows for making NDAs more specific further down the line but does not allow widening their scope. Should employees fail to respect the confidentiality of information, the NDA will allow you to sue and recover damages.
When starting a new business, you might not immediately consider ways to protect your assets from future threats. In fact, at the very beginning you may feel that you have no assets to protect.
This could not be further from the truth. In the early stages of a business, especially a start-up, your ideas and intellectual property can have tremendous value and must be protected at all costs.
NDAs are extremely valuable in the business world, and they’re an important tool to understand when it comes to important business negotiations. A well-drafted NDA gives you added protection when sharing confidential information before a deal is finalized.
NDAs need to be customised to make sure they provide the right protection and will be enforceable if something goes wrong. It’s essential to get bespoke legal advice to ensure your non-disclosure agreement prevents future problems rather than creating them.