NDA Contracts: Everything You Need to Know
NDA contracts, or non-disclosure agreement contracts, are written contracts where the receiving party is barred from disclosing confidential information.3 min read
What is an NDA?
NDA contracts, or non-disclosure agreement contracts, are written contracts where one party—the Disclosing Party—offers sensitive or confidential information to another party—the Receiving Party—that the Receiving Party is barred from disclosing. In such agreements, both parties understand that the information in question should not be shared with any third party, because it has value for commercial or other purposes.
A standard NDA contract should identify:
- The Effective Date. The date the nondisclosure agreement begins.
- The Transaction. The nature of the business relationship.
- The Confidential Information. What information is not to be disclosed.
- The Disclosing Party. The entity sharing the information.
- The Receiving Party. The entity being given the information.
- The Representatives. Any other entities that may receive, share, or safeguard the information.
Types of NDAs
There are four types of NDAs, and they are:
- The standard NDA. This is the traditional NDA, and it can be used for almost any scenario in which an individual or company will need to protect their information.
- The inventor agreement. This NDA is useful to inventors who want to discuss unpatented inventions with another party. It will can be used to protect schematics, business operations, and designs. It should not be considered as a stand-in for a patent.
- The employee NDA. This prevents employees from discussing specified business-related information with non-employees. Such information that may be protected by this agreement includes advertising initiatives, sales data, and supplier lists.
- The interview NDA. It may be necessary to discuss confidential information in an interview, and this protects a company if such is the case. It is similar to an employee NDA, but for potential employees.
Considerations Before Signing an NDA
If you are presented with an NDA, there are some considerations you should make before signing it. They are:
- The scope of the document. You should fully understand what kind of information is being asked to be kept confidential, how this is to be done, and how long the confidentiality will last.
- The broad language. You should have reservations about broad language that doesn’t relate specifically to the matter at hand, as this may bind you more than is reasonable and increase your potential for taking action that would be considered to be in breach of contract.
- Liquidated damages. You should avoid NDAs with this provision if at all possible. Liquidated damages means that if you are found to have breached the NDA, the other party can receive a specified amount of damages without having proved the breach damaged them.
- Contract breach consequences. If the consequences of breaching the NDA are particularly harsh, you may want to avoid signing, if possible.
- Negotiation. Just because you are presented with an NDA does not mean you have to accept it as-is. If you see a provision that seems out of place or unjust, you can at least ask to have it removed.
Consequences of Not Issuing an NDA
For the Disclosing Party, not having an NDA could result in:
- Lost income, name recognition, or business opportunities.
- Lawyer fees related to legal battles pertaining to the disclosure of valuable information or trade secret misappropriation.
- Mental anguish from having another profit from your idea.
For the Receiving Party, a lack of an NDA could lead to:
- Loss of money or reputation due to the unpermitted use of confidential information.
- A court order to stop doing business if confidential information is used without permission.
- Lawyer fees from legal battles relating to disclosing or using valuable information.
- Mental anguish from a long, intense lawsuit.
Aside from protecting your confidential information, NDAs have great value insofar as that, ideally, they can prevent the above grief and complications from occurring. When the Receiving Party understands what is off-limits for discussion or use and what the consequences for breach of contract will be, both sides will benefit.
Consequences of NDA Breach
If NDA breach occurs, the party responsible for the breach could be sued by the other party for damages, be compelled to reimburse the other party for profits lost, or be considered to be in contempt of court, which might bring on criminal charges. If you feel an NDA has been breached against you, you may want to consult a lawyer as to what your next steps should be.
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