Have you ever wondered how to protect confidential information when conducting business or negotiations? A Non-Disclosure Agreement (NDA) is a powerful tool that helps prevent leakage information and ensures confidentiality.
What is an NDA?
A non-disclosure agreement (NDA) is a legal contract in which one party provides confidential information about their business, products, or know-how to another party, and the other party commits not to disclose this information to anyone else and to keep it confidential for a specified period of time.
NDA is used to protect confidential information and intellectual property by detailing what information must remain confidential and what information can be shared or disclosed to the public.
When and why is it recommended to sign an NDA?
A Non-Disclosure Agreement is typically signed at the outset of business relationships, however, it can also be executed after entering into such relationships if there is a need to enhance the additional protection of confidential data.
Companies use an NDA in various situations. For instance, when an organisation enters into a partnership agreement, committing to perform tasks for a partner without compensation, the partner may become privy to the entity’s approaches to service delivery, trade secrets, patented processes, marketing strategies, or any other valuable business information.
Another example where an NDA is necessary is during the sale of a company. An enterprise looking to sell itself may require any potential buyer to sign an NDA to protect any confidential information that the company may disclose during sale negotiations.
Similarly, an organisation may enter into an NDA with potential investors or sellers/suppliers.
What are the benefits of signing an NDA?
- Protection of confidential information. An NDA ensures a high level of confidentiality and helps prevent the leakage of important information, especially when sharing sensitive data or business strategies.
- Legal protection. Signing an NDA establishes legally binding terms that govern the handling and disclosure of confidential information. In case of a breach, you have the right to seek legal recourse and compensation.
- Preserving competitive advantage. An NDA allows you to share information with potential partners, investors, or employees without risking the loss of a competitive edge. You can provide access to critical data, knowing it will be securely protected.
- Cooperation and partnership. An NDA can facilitate cooperation and partnership between counterparties. This enables the development of joint projects and resource sharing while maintaining confidentiality.
- Attracting investments. Investors often require an NDA before providing funding. This provides them with added confidence in the security of their investments.
- Building trust. Signing an NDA demonstrates your commitment to confidentiality and data protection, enhancing trust with partners, clients, and investors.
- Compliance with regulations. In some cases, an NDA can help comply with data protection regulations, such as the General Data Protection Regulation (GDPR) in Europe.
- Psychological deterrence. An NDA creates a psychological barrier for individuals considering breaching confidentiality, deterring potential violators.
What should an NDA include?
- Parties. Specify the names of all parties involved, including the party providing confidential information (the disclosing party) and the party receiving such information (the receiving party).
- Description of confidential information. In an NDA, it is essential to clearly and comprehensively define what information is deemed confidential. This may include technical data, business plans, customer lists, trade secrets, marketing strategies, etc. This section of the agreement is one of the key sections, as it is to its content that the affected party will appeal in case of data disclosure (leakage).
- Obligations of the receiving party. Describe the obligations of the receiving party regarding confidential information. This section may include rules and procedures for using, handling, storing, disclosing to third parties, notifying the disclosing party of any breaches or leaks of confidential information, and other important aspects related to data protection. Additionally, we recommend including a provision that prohibits the receiving party from contacting any employees of the disclosing party regarding confidential data or making offers of cooperation for a specified period after an NDA’s termination.
- Exclusions. Specify cases where disclosure of information is permissible. For instance, data may be disclosed by court order or if it becomes publicly accessible.
- Duration (term). Specify the duration (term) of the NDA. It can be for a limited period (e.g., 5 years), an indefinite period, or until the completion of a specific project or the primary contract to which an NDA is appended.
- Return of confidential information. Outline the procedure for returning or disposing of confidential information.
- Notices. Establish relevant communication channels to communicate with the counterparty, including notifications of data breaches. We advise exchanging messages via email, followed by mandatory postal mail delivery. This is the most effective and legally acceptable method.
- Sanctions. Specify the consequences of violating an NDA, including potential legal effects. Establish the disclosing party’s right not to limit remedies to damages and to use all legal means of protection. We particularly recommend clearly defining penalties for disclosing confidential information.
In conclusion, more than simply informing the counterparty that confidential information is required to ensure robust protection.
To secure reliable protection, it is necessary to enter into an NDA that carefully defines the list of confidential information, sets restrictions on its use, outlines access procedures, and imposes sanctions for disclosure.
The COREDO team can assist you in drafting an optimal NDA tailored to your needs and guide any questions related to its application.
By Dmitry Vyalkov, LLM, lawyer at COREDO.