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A Non-disclosure agreement (NDA), also known as a confidentiality agreement (CA), confidential disclosure agreement (CDA), proprietary information agreement (PIA), or secrecy agreement (SA), is a legal contract between at least two parties that outlines confidential material, knowledge, or information that the parties wish to share with one another for certain purposes, but wish to restrict access to or by third parties. It is a contract through which the parties agree not to disclose information covered by the agreement. An NDA creates a confidential relationship between the parties to protect any type of confidential and proprietary information or trade secrets. As such, an NDA protects non-public business information.
NDAs are commonly signed when two companies, individuals, or other entities (such as partnerships, societies, etc.) are considering doing business and need to understand the processes used in each other's business for the purpose of evaluating the potential business relationship. NDAs can be "mutual", meaning both parties are restricted in their use of the materials provided, or they can restrict the use of material by a single party.
It is also possible for an employee to sign an NDA or NDA-like agreement with an employer. In fact, some employment agreements will include a clause restricting employees' use and dissemination of company-owned confidential information.
A non-disclosure agreement (NDA) may be classified as unilateral, bilateral, or multilateral:
A unilateral NDA (sometimes referred to as a one-way NDA) involves two parties where only one party (i.e., the disclosing party) anticipates disclosing certain information to the other party (i.e., the receiving party) and requires that the information be protected from further disclosure for some reason (e.g., maintaining the secrecy necessary to satisfy patent laws or legal protection for trade secrets, limiting disclosure of information prior to issuing a press release for a major announcement, or simply ensuring that a receiving party does not use or disclose information without compensating the disclosing party).
A bilateral NDA (sometimes referred to as a mutual NDA or a two-way NDA) involves two parties where both parties anticipate disclosing information to one another that each intends to protect from further disclosure. This type of NDA is common when businesses are considering some kind of joint venture or merger.
When presented with a unilateral NDA, some parties may insist upon a bilateral NDA, even though they anticipate that only one of the parties will disclose information under the NDA. This approach is intended to incentivize the drafter to make the provisions in the NDA more "fair and balanced" by introducing the possibility that a receiving party could later become a disclosing party or vice versa, which is not an entirely uncommon occurrence.
A multilateral NDA involves three or more parties where at least one of the parties anticipates disclosing information to the other parties and requires that the information be protected from further disclosure. This type of NDA eliminates the need for separate unilateral or bilateral NDAs between only two parties. E.g., a single multiparty NDA entered into by three parties who each intend to disclose information to the other two parties could be used in place of three separate bilateral NDAs between the first and second parties, second and third parties, and third and first parties.
A multilateral NDA can be advantageous because the parties involved review, execute, and implement just one agreement. However, this advantage can be offset by more complex negotiations that may be required for the parties involved to reach a unanimous consensus on a multilateral agreement.
A nondisclosure agreement can protect any type of information that is not generally known. However, nondisclosure agreements may also contain clauses that will protect the person receiving the information so that if they lawfully obtained the information through other sources they would not be obligated to keep the information secret. In other words, the nondisclosure agreement typically only requires the receiving party to maintain information in confidence when that information has been directly supplied by the disclosing party. Ironically, however, it is sometimes easier to get a receiving party to sign a simple agreement that is shorter, less complex and does not contain safety provisions protecting the receiver.
Some common issues addressed in an NDA include:
- outlining the parties to the agreement;
- the definition of what is confidential, i.e. the information to be held confidential. Modern NDAs will typically include a laundry list of types of items which are covered, including unpublished patent applications, know-how, schema, financial information, verbal representations, customer lists, vendor lists, business practices/strategies, etc.;
- the disclosure period – information not disclosed during the disclosure period (e.g., one year after the date of the NDA) is not deemed confidential;
- the exclusions from what must be kept confidential. Typically, the restrictions on the disclosure or use of the confidential data will be invalid if
- the recipient had prior knowledge of the materials;
- the recipient gained subsequent knowledge of the materials from another source;
- the materials are generally available to the public; or
- the materials are subject to a subpoena – although many practitioners regard that fact as a category of permissible disclosure, not as a categorical exclusion from confidentiality (because court-ordered secrecy provisions may apply even in case of a subpoena). In any case, a subpoena would more likely than not override a contract of any sort;
- provisions restricting the transfer of data in violation of laws governing export control and national security;
- the term and conditions (in years) of the confidentiality, i.e. the time period of confidentiality;
- the term (in years) the agreement is binding;
- permission to obtain ex-parte injunctive relief;
- description of the actions need to be done with the confidential materials upon agreement ending;
- the obligations of the recipient regarding the confidential information, typically including some version of obligations:
- to use the information only for enumerated purposes;
- to disclose it only to persons with a need to know the information for those purposes;
- to use appropriate efforts (not less than reasonable efforts) to keep the information secure. Reasonable efforts is often defined as a standard of care relating to confidential information that is no less rigorous than that which the recipient uses to keep its own similar information secure; and
- to ensure that anyone to whom the information is disclosed further abides by obligations restricting use, restricting disclosure, and ensuring security at least as protective as the agreement; and
- types of permissible disclosure – such as those required by law or court order (many NDAs require the receiving party to give the disclosing party prompt notice of any efforts to obtain such disclosure, and possibly to cooperate with any attempt by the disclosing party to seek judicial protection for the relevant confidential information).
- the law and jurisdiction governing the parties. The parties may choose exclusive jurisdiction of a court of a country.
Deeds of confidentiality and fidelity (also referred to as deeds of confidentiality or confidentiality deeds) are commonly used in Australia. These documents generally serve the same purpose as and contain provisions similar to non-disclosure agreements (NDAs) used elsewhere. However, these documents are legally treated as deeds and are thus binding, unlike contracts, without consideration.
In California, (and some other states), there are some special circumstances relating to non-disclosure agreements and non-compete clauses. California's courts and legislature have signaled that they generally value an employee's mobility and entrepreneurship more highly than they do protectionist doctrine.
Use of non-disclosure agreements are on the rise in India and is governed by the Indian Contract Act 1872. Use of an NDA is crucial in many circumstances, such as to tie in employees who are developing patentable technology if the employer intends to apply for a patent. Non-disclosure agreements have become very important in light of India's burgeoning outsourcing industry. In India, an NDA must be stamped to be a valid enforceable document.
- Arrow information paradox
- Business broker
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- Due diligence
- Invention Secrecy Act (United States, 1951)
- Non-compete clause
- NXIVM Corp. v. The Ross Institute
- Form SF-312 classified information NDA
- Trade secret
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Second, the use of confidentiality agreements can prevent the forfeiture of valuable patent rights
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