One of the first agreements to be signed before parties enter a commercial relationship with each other is a Non-Disclosure Agreement (NDA) to prevent leaking of any sensitive, classified, or confidential information discussed to a third party not part of such discussions.
An NDA has two parties:
(a) the party disclosing sensitive or confidential information, known as the Disclosing Party, and
(b) the party receiving the sensitive information, known as the Receiving Party.
An NDA differs from a Confidentiality Agreement in that it needs less concealment. Parties must not disclose personal or private information in an NDA, whereas parties must take proactive measures to ensure information is not released or leaked under a Confidentiality Agreement. Second, confidentiality agreements are more commonly utilised in work or personal settings, whereas nondisclosure agreements are employed in third-party or start-up scenarios.
Factors to be considered before drafting-
Obligations under the NDA must be reviewed:
If one party requires another to sign an NDA, it is critical to review it. NDAs sometimes include non-compete and non-solicit terms, which prohibit one or both parties from competing in the same field as each other and from taking clients or suppliers away from the Disclosing Party.
Scope of the confidential information must be taken into consideration:
In every NDA, what constitutes confidential information is always defined. Usually, the Disclosing Party would want this definition to be as broad as possible to include all of the disclosed information, whereas the Receiving Party would want this clause to be as narrow and specific as possible.
Remedies available if breach has occurred:
When an NDA is violated, either financial remedies or an injunction can be sought to prevent the Receiving Party from acting on or exploiting the secret information. After successfully requesting an injunction, the Disclosing Party may approach a court and request that the Receiving Party return all sensitive information with it and refrain from disclosing such information to other parties.
Pre-requisites of Confidential Information:
Some parties state specifically on their NDA that information that is specifically marked “Confidential” must not be disclosed to parties not related to the agreement or transaction.
Exceptions and Disclosures:
There must always be exceptions that do not result in a penalty for disclosure. These must be included in the NDA and include situations such as information already known to the Receiving Party, publicly known information, disclosure to courts due to a court order, future changes to the law such that confidential information or its components cannot be kept confidential, and so on.
Term or Duration:
When there is a confidentiality clause in agreements, the term for confidentiality of disclosed information, exceeds the duration of that agreement. However, in an NDA the duration for which the confidential information must not be disclosed must be stated clearly.
Instead of an NDA, the main terms of an NDA can sometimes simply be added to agreements in the form of a confidentiality clause. This confidentiality clause is added to the boilerplate or standard clauses seen in all contracts. NDAs are also used in a wide range of industrial applications. They are not only utilized when businesses deal with one another, but they can also be included in employee contracts, settlement agreements between adversaries in a dispute, intellectual property contracts, and so on. As a result, NDAs are crucial in each transaction.