Introduction
The business industry has been growing exponentially in the last century. With the onset of the new age and up-and-coming business ideas, every day 100s of people meet to discuss their out-of-the-box ideas in terms of investment, meeting with potential investors, planning its release, technology, advertisement, etc. Now, it is important to know, how are these ideas protected, kept out of the public eye, and not leaked in the world of the internet.
Definition
Non-disclosure agreements at their core are a legal contract. They follow the basic elements of a contract as well. The capacity, Consideration, and acceptance of the non-disclosure. Non-disclosure agreements are also called Confidentiality Agreements.
In simple terms, a nondisclosure agreement lays down an agreement between two or more parties called the disclosing and receiving parties to keep certain information confidential, out of the public eye, or disclosed to any third party.
Confidential information may include but is not limited to inventions, strategies, business plans, trade secrets, etc. Confidential information will always be different for each kind of business.
Types of Non-Disclosure Agreements
NDAs are categorized into 3 different types to cater to different needs of confidentially.
- Unilateral NDAs: In a Unilateral NDA, only the disclosing party discloses the information which is to be treated as confidential information with the receiving party(s). The receiving party is bound to keep that information a secret. The party may also agree not to misuse such information.
Such an NDA is used when sharing crucial or sensitive data or information with employees, investors, or consultants. Such NDAs also serve as a preventative measure to secure the information and control the unauthorized use of such information.
Unilateral NDAs are most commonly used by startups when meeting up with potential investors, and advertisement companies, even in the case of preparing for an Initial Public Offering (IPO) all the intermediaries involved in such a process must sign an NDA.
Unilateral NDAs can benefit the disclosing party in protecting intellectual property such as software codes, trade secrets, proprietary information, etc.
They also Promote Open Communications and foster Business Relationships by having the security of the protection of information not only facilitating honest interplay of conversation but also enabling transparent and effective discussions.
They also protect the competitive advantage, as the information pertaining to such advantage will be confidential and the receiving party will be obligated to maintain its secrecy.
Unilateral Agreements are also known as One Way Agreements.
- Mutual NDAs: In a Mutual NDA, both of the parties involved share confidential information with each other. Both of the Parties disclose and receive information that will be deemed confidential through the NDA. Both parties are obligated to protect the information and agree to not disclose the information to any third party, misuse the information in any way, or do an unauthorized spreading of the information.
This NDA establishes a reciprocal obligation between the parties, in simpler words this NDA goes two ways i.e. towards both the parties, both of whom have to share sensitive or vulnerable information to both of them. Such kinds of NDAs are used during mergers, Joint venture agreements, and collaborative projects.
The objective of this NDA is to also facilitate open, honest, and transparent communication pertaining to their projects, the contract providing a sense of security to both parties while sharing such information. Therefore, providing a balance of protection, assuring the mutual non-disclosure of confidential information.
Mutual NDAs also provide a legal framework for the substantial contract which may or may not be signed after the meeting. Such NDAs help build a consensus of further agreements that may be built upon meetings.
Mutual NDAs also function as a safeguard for a variety of assets, such as trade secrets, client information, proprietary technology, and intellectual property. NDAs assure businesses to enter into joint ventures, strategic alliances, and cooperative partnerships by stipulating a shared commitment to confidentiality.
Mutual NDAs also prove to be essential for encouraging innovation and industry-player collaboration in the technology sector and offer a structure for exchanging important information and intellectual property while reducing related risks, whether in R&D collaborations, licensing arrangements, or technology transfer agreements.
This NDA guarantees the preservation of important medical advancements while stakeholders work together to enhance patient outcomes and promote medical innovation.
Mutual NDAs are also called Two Way or Bi-Lateral Agreements
Multilateral Agreement: In Multi-Lateral Agreements, there are three or more parties, and some or all of them may be receiving and disclosing parties. Where all or some of them relaying and receiving information agree for the non-disclosure, and authorized use of the information deemed to be confidential. This NDA holds up collaborative features of both Unilateral and Bilateral Agreements.
Key Elements of a Non-Disclosure Agreement
- Parties: The first element of an NDA is the identification of the parties. This section will establish what kind of NDA it is going to be, unilateral, bilateral, or multilateral one. This section also defines the disclosing and the receiving party, The party as a term also states that it will include not only the namesake but also the successors, and heirs of that party.
- Term of the Agreement: A must-have in a non-disclosure agreement is to define the terms of the contract. The term refers to the period for which the nondisclosure agreement is enforceable. Usually, the agreement is for a lifetime period or else it mentions the date of expiration of the agreement and the rules and obligations that shall be applicable post the expiry. The term section also defines the date of execution of the agreement. Such a date is better known as the effective date.
- Confidential Information: A non-negotiable element in the NDA is the definition of a confidential agreement. The confidential agreement may include every possible angle and aspect of the discussion in the meeting, it should also anticipate the further possibilities which could harm the object of the meeting. Such a section should also specify the extent to which the information can be used and the various ways that should be avoided that could violate the secrecy of the agreement.
- Disclosure of Confidentiality: This particular element of the agreement provides that where the contents of the information can be shared. Most commonly this section is in compliance with the government-issued directions, which include but is not limited to information available in the public domain, or already in the possession of the receiving party free of restriction prior to the discussion with the disclosing party, or was independently developed by the receiving party without the using the information as given by the disclosing party.
- Dispute Resolution: A unique addition to the non-disclosure agreement is a dispute resolution is the section that deals with remedies that a party will follow in case of any dispute arising from this agreement. It popularly includes Arbitration as the method of dispute resolution. This section mentions the number of arbitrators, The seat of arbitration, and the language of the arbitration among other things. This section can also include more than one method of dispute resolution, including but not limited to Mediation, and Conciliation.
Pre-Requisites for a Non-Disclosure Agreement
- Identification of the Parties: The NDA should clearly define the parties involved, along with the identification of their role. This clause also clearly states the working address of the party, it also includes the CIN number for the company entities and the PAN number or Aadhar number for the individual entity.
- Definition of the Confidential Information: Confidential Information is declared at the onset of the agreement. Confidential information in simple words refers to the information relating to the disclosing party which may be disclosed from time to time to the receiving party. It includes all information shared orally as well as in writing, which may relate to any business affair, any technical data or know-how relating to the subject, and the object of the meeting. Any information which is/ may be available in the public domain is not considered as a piece of confidential information even if it is stated in the confidential clause.
- Scope of the Agreement: The scope of the confidential information outlines as to what period and persons the confidentiality extends to when it can be shared and to whom it can be shared. Scope may also include the kind of agreement that may occur in various situations where a non-disclosure agreement could be signed.
- Exceptions to confidentiality: Exceptions to confidentiality refer to such situations where confidentiality can be breached. It includes the same situations as discussed in the above-mentioned point of Disclosure of Confidentiality.
- Obligations of the recipients: The NDA should include the duties and the obligations of the receiving party that they must swear to follow, some of them can include, obtaining prior and written consent of the disclosing party, to disclose any sort of sensitive information given or shared by the disclosing party, or that the receiving party must take all reasonable steps to avoid the breach of the confidential information and to protect the integrity of the agreement, or that the receiving party should not use the confidential information for any gain, financial or not, but may with consent use the information for a non-profit purpose or the receiving party shall not make any copies of the confidential information or reproduce it any manner.
- Remedies for the Breach: This clause refers to the remedies, monetary or otherwise which may be available in case of a breach, it may also include a dispute resolution clause.
- Governing Law and Jurisdiction: This clause mentions the governing law that may apply to the agreement, in cases where the parties belong to different countries, the governing law clause plays an important role in the enforceability of the agreement.
Conclusion
Non-exposure arrangements play a key part in the cutting-edge business scene, offering a component for safeguarding private Businesses that can effectively use NDAs to safeguard their interests and foster trust and collaboration in professional relationships by adhering to best practices and ethical guidelines. Following the above blog, this author tried to cover the major aspects of a nondisclosure agreement, while also outlining a few clauses for your reference.
Authored by- Khushi, Guru Nanak Dev University, Amritsar
