Non-Disclosure Agreements (NDA)

Non-disclosure agreements are legal contracts between at least two parties who decide to share confidential material, knowledge, or information but wish to keep this information private from third parties.

These agreements are often used by companies who are considering doing business with one another and who need to understand the processes used in each other’s business in order to evaluate the potential business relationship.

There are three different types of non-disclosure agreements that are stated below:

Unilateral: Unilateral NDAs involve two parties but only one party, known as the disclosing party, agrees to disclose confidential information to the other (receiving) party. This confidential information can include the protection of patent laws, trade secrets, or major announcements that the disclosing party wants to keep private from the press prior to the official public release.

Bilateral: Bilateral NDAs involves two parties where both parties agree to disclose confidential information to the other party. These agreements are common when companies are considering a joint venture or merger.

Multilateral: Multilateral NDAs involve three or more parties where at least one of the parties discloses information to the other parties that they wish to keep private. Some of the strengths of Multilateral NDAs include that they eliminate the need for separate unilateral or bilateral NDAs and that the two parties can review execute and implement just one agreement; however, it can sometimes be challenging for multiple parties to reach a common agreement on the terms of the NDA.

Non-disclosure agreements can have many different uses besides just business agreements. These agreements include doctor-patient confidentiality, attorney-client privilege, priest-penitent privilege and bank-client confidentiality agreements; however, this article mainly explores the reasons and uses for NDAs in the business world.

Below are some of the reasons a business might decide to use a confidentially agreement:

• Sharing financial, marketing or other information with a prospective buyer of your business
• Presenting a business idea or patent to a potential business partner, investor, or seller
• Allowing employees to access confidential and proprietary information during the course of the job
• When receiving services from a company or individual who might gain access to sensitive information

There are a few key elements that should be outlined in a Non-disclosure agreement including the identification of the receiving party, the definition of what should be considered to be confidential, the scope of confidentiality, the term of the agreement, and the exclusions from confidential treatment. Common exclusions include information that was already known to the recipient or already publicly known and information that was already independently obtained by the receiving party without the help of the disclosing part. The term a non-disclosure agreement can range from a very short period of time to an indefinite period; however, most receiving parties insist on having a definite term when the agreement ends. Most agreements typically have a term limit of two to five years due to the rapidly-changing technology market, but the contract usually specifies that the receiving company isn’t going to give up any other rights that it may have under copyright, patent, or other intellectual property laws.

Final notes

A few final notes about non-disclosure agreements:

• Most non-disclosure agreements are usually not long or complicated. They typically range from a page to a couple pages
• Non-disclosure agreements typically don’t make sense for start-ups trying to raise funding as most venture capitalists will refuse to sign such document
• Like all contracts, NDAs cannot be enforced if the contracted activities are felonies
• Oral information can be tricky because some recipients of the information insist that only information conveyed in writing needs to be kept confidential
• If an NDA is breached by one party, the other party may seek court action to prevent further disclosures or they may sue the disclosing party for monetary damages