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What is a non-disclosure agreement?

A non-disclosure agreement (also referred to as a 'confidentiality agreement’ or an ‘NDA’) is a legally binding agreement designed to protect valuable or sensitive business information from being disclosed to third parties during discussions with potential or existing collaborators, investors, or employees. 

What is included in a non-disclosure agreement?

What exactly an NDA includes depends on the character of the information and of the relationship between the parties. However, some things an NDA will generally contain include:

  • defining which  information is considered confidential

  • how this information should be protected

  • who is allowed to receive it

  • how the NDA can be ended

  • the remedies available in case of a breach of the agreement

  • disclosures that may be permitted by law 

An NDA should be signed by the relevant parties before any serious discussions take place (eg before the important information is disclosed).

When should I use a confidentiality agreement?

NDAs are often used when two businesses are considering collaboration opportunities, to ensure that any IP or trade secrets discussed during the preliminary negotiation stages will not be misappropriated or shared with others. Confidentiality agreements may also be used by inventors talking to potential investors or employers carrying out interviews for senior-level appointments

If you’re considering applying for a patent, you should protect your ideas using an appropriate NDA when you discuss them with anyone you do not completely trust.

Businesses whose core product is based around unique IP (eg software designers or e-commerce startups) have the most to lose if their IP is unjustly disclosed. Therefore, it’s particularly important for these businesses to, protect themselves with an NDA when talking to potential:

  • investors

  • collaborators

  • manufacturers

  • suppliers

  • licencees

  • business coaches

  • marketing agencies

For more information, read Protecting confidential information.

When do non-disclosure agreements expire?

NDAs can be ended (or ‘terminated’) in a variety of ways, which must usually be set out in the agreement itself. For example, an NDA could specify that the agreement ends: 

  • when the parties to the NDA agree that the purpose for which information has been disclosed has been fulfilled

  • if one of the parties has given written notice that they wish to terminate the agreement

  • automatically, after a certain period of time since the start of the NDA

An NDA also usually specifies what must happen to confidential information after the NDA is ended. For example, there may be a requirement that it is returned or destroyed. 

NDAs may also include a clause specifying that protection for confidential information that has already been disclosed will continue for a certain period of time after the agreement ends. Such a time period should be limited to what is reasonable, considering the particular information that’s being shared. 

Are non-disclosure agreements legally binding?

An NDA is a legally binding document. If a party that has signed an NDA later discloses or uses the information that they’ve agreed to keep confidential (in a way that they’ve agreed not to), this will be an unlawful ’breach of confidence’.

If a breach of confidence occurs, the party whose rights were infringed can enforce their rights via a court case. They may be awarded remedies including:

  • damages (ie compensation)

  • account of profits (ie they’re paid all or some of the profits that the party who breached the NDA made as a result of the breach)

  • an injunction (a court order which could, for example, prohibit the breaching party from continuing to use the other’s IP)

What different types of confidentiality agreements are there?

A standard Two-way non disclosure agreement - this covers information disclosed by either party involved in discussions. Businesses considering collaboration or exploring a possible merger may want to implement a two-way NDA before revealing any sensitive information.

A One-way confidentiality agreement - this is used when valuable information or IP is only being disclosed by one party. It’s suitable for an inventor who wishes to hold discussions with an investor or for an employer recruiting for a senior-level position.

A Letter of confidentiality - this provides a straightforward method of protecting confidential business information. It can protect important confidential information or IP in a simple yet efficient manner, without the formality and potentially onerous negotiations involved in creating a one-way or two-way NDA.

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