NDA Law: Everything You Need to Know
NDA law covers the rules for writing a legally binding non-disclosure agreement.3 min read
NDA law covers the rules for writing a legally binding non-disclosure agreement. In particular, these laws describe what type of information can be kept confidential and the consequence for revealing such information after signing a non-disclosure agreement.
Protecting Trade Secrets with NDAs
If you want to protect your business's valuable trade secrets, your best option is using a non-disclosure agreement (NDA).
Almost every business possesses valuable information that must remain confidential to ensure the success of the business. A business's confidential information is commonly referred to as a trade secret. Information that can be considered a trade secret includes:
- Customer lists.
- Manufacturing processes.
- Chemical formulas, such as the recipe for a soda.
The primary purpose of an NDA is to shield trade secrets from misappropriation. Trade secrets differ from other forms of intellectual property in that they aren't required to be a part of the public domain, which is a requirement for patents. Another unique feature of trade secrets is that they are only eligible for protection if the owner has made reasonable attempts to protect the secret and the secret has market value.
A non-disclosure agreement is a type of contract that an employer can request that employees sign. After the employees sign the agreement, they must protect trade secrets that they learn during the course of their employment. The benefit of NDAs is that employers will have access to legal remedies if one of their employees discloses confidential information covered by the agreement.
There are a variety of uses of non-disclosure agreements:
- If you need to provide an employee access to your company's confidential information.
- If you are thinking about purchasing a company and will learn its trade secrets during negotiations.
- To protect all parties in a joint venture.
- Designing a new product.
How to Create a Confidential Relationship
A non-disclosure agreement creates a confidential relationship between the parties listed in the agreement: the person who owns the trade secret and the person who learns the secret. When this relationship forms, there is a legal responsibility not to reveal the information covered by the agreement.
While NDAs are effective tools for creating confidential relationships, they are not the only tool that can accomplish this goal. Confidential relationships can be created through the actions of both parties or with a verbal contract. Proving these types of relationships is difficult, however, which is why most businesses prefer written NDAs.
NDAs can either be one-way agreements or mutual agreements. When an NDA is a mutual agreement, it means both parties will reveal trade secrets. For instance, if two companies are planning a joint venture, they may need to exchange confidential information back and forth in order to complete the project.
As you might expect, a one-way NDA is an agreement where only one party exposes a trade secret. If you hire a contractor to help with a business project, for example, you may need to tell them private information about your business. Using an NDA is the most effective solution for securing your trade secrets. With these agreements, you can deter your employees from revealing private business information, such as a website idea or the design of a new invention.
If someone reveals one of your trade secrets in violation of an NDA, you can sue them for breach of contract. In order to prevail, you must prove that you actively worked to protect your trade secrets.
When writing a non-disclosure agreement, you should be sure that your contract includes five crucial elements:
- A definition of what information is confidential.
- Information that will be excluded from the agreement.
- Responsibilities of the party that receives the confidential information.
- The length of the non-disclosure agreement.
- Additional provisions you may want to include in the agreement.
Defining confidential information is the most important part of writing an NDA. In this section of your contract, you are not actually disclosing confidential information. Instead, you are setting the boundaries of the contract.
For instance, if you reveal information related to your company's computer system, you could state that the confidential information protected by the NDA includes computer code, the finished software program, and financial data. After drafting your NDA, you should read the document to make sure that the contract covers all of your business's important trade secrets.
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