Non-Disclosure Agreement: Everything You Need to Know
A non-disclosure agreement (NDA) is a contract that keeps one party from revealing another party's secrets by a confidential relationship between the parties.5 min read
What Is a Non-Disclosure Agreement?
A non-disclosure agreement (NDA) is a legal contract that keeps one party from revealing another party's secrets. An NDA makes a confidential relationship between the parties, are used to protect proprietary or secret information, typically in business relationships. NDAs get more complicated the more information they need to cover, though they can start very simply. NDAs are especially popular in tech fields.
Other names include the following:
- Confidentiality Agreement.
- Non-Disclosure Form.
- Confidentiality Clause.
- Confidentiality Statement.
Sample NDAs for Download
NDAs are used in the following circumstances:
- Between employers and employees.
- During upper management job interviews. During these interviews, confidential company information comes up. It would be difficult to hire a high-level executive without talking about some of these secrets.
- When hiring consultants or independent contractors.
- When interviewing vendors. A company might have to tell the vendor secret information to figure out if a vendor can do the service the company needs.
- Situations where stock is being bought.
- For people who look at company information. That means accountants, product review employees, and company owners.
Types of information NDAs protect include the following:
- Business Operations and Accounting.
- Intellectual Property.
- Trade Secrets—recipes, manufacturing information, or formulas.
- Computer Technology.
- Marketing, Product, and Service.
What Does an NDA Include?
Every NDA is unique, but they share many key features:
- Time frame.
- What the confidential information is.
- What the confidential information isn't.
- Information about everyone involved.
- Ownership information.
- Information about signing the NDA.
Typical NDA clauses include the following:
- Definition of Confidential Information. Everything that falls under the agreement. Written information needs a stamp of "confidential" on it. You need to offer a list of what information is confidential. This could include financial information, software materials, innovative processes, or program code.
- Explanation of Purpose for Disclosure. Explains why confidential information is being told to the party signing the agreement.
- The Parties to the Agreement. Who is signing the NDA. In a one-way NDA, the person with the sensitive information is the Discloser, and the person getting the information is the Recipient.
- Disclosure. If the Receiver keeps the information secret, then they are allowed to have the information. This puts extra pressure on the Discloser so a lot of NDAs leave this clause out.
- No Disclosure. A clause that helps explain how strong the NDA is. It might include the following:
- A "best efforts clause."
- A "need to know" basis for the information the Recipient gets.
- If the Recipient should protect the confidential information the same way they protect their own information.
- No Use. The Recipient can't use the information in any way other than what the NDA says. Not all NDAs have this clause, but it's very important.
- Exclusions from Confidential Information or Limits on Information Deemed Confidential. Information that doesn't count as secret. This includes if you work for another company that does something similar, then move to a new company. If you learned something at the old company, the new company's NDA doesn't cover that information for you, because you already knew it.
- Obligations of Receiving Party. What you aren't allowed to do with what you receive. You can't try to get someone else to share the secrets. You can't try to make someone discover a secret, either.
- Time Periods. How long the agreement lasts. It can last for a period, such as five years. U.S. companies go for five years and sometimes drop down to two or three. European companies like to do 10 years. Or, it might expire when a project gets done. Some NDAs never expire.
- Relationships. The agreement doesn't change the relationship of the parties involved.
- Severability. What happens if the court decides part of the agreement is invalid.
- Integration. You can't alter the agreement unless everyone signs more documents.
- Waiver. If you don't use one of your rights that the agreement lists, you haven't voided the other rights you get from the agreement
- Notice of Immunity. Employees aren't responsible if they tell secret information in certain circumstances. These might include because of a court order, to a government official, or to a lawyer. The situations usually involve a lawsuit, a law violation, or other legal proceedings.
- Miscellaneous. Other clauses might include the following:
- Who pays legal fees.
- How disputes are resolved.
- Which state law you use if someone breaches the contract.
- If the agreement also binds heirs and assigns.
- That confidential material needs to be given back.
- The Discloser owns all information.
- That the Recipient can't hire the Discloser's employees, usually for 12 to 24 months.
- The Recipient doesn't get any rights to enter into deals with the Discloser.
Types of NDAs
- Unilateral NDA. One party can't leak information about the other party. Most NDAs are unilateral.
- Mutual NDA. Both parties agree that they won't leak each other's information. Businesses working together use mutual NDAs.
Why Are NDAs Important?
How Employers Benefit:
- NDAs keep people from sharing trade secrets, proprietary knowledge, client information, product information, and strategic plans.
- NDAs keep people from making a profit on any secret company information.
- NDAs usually say that a company owns things that get developed or produced during someone's employment. That might include things written or invented.
- The contracts also often say a company owns things that are developed, written, invented, or produced during someone's contract, interview, or services provided to the company.
- NDAs usually let a company give someone permission to use certain company information. With that permission, previous employees can start businesses of their own or become company vendors.
- NDAs are more concrete than oral agreements, or implied agreements that come about from company and employee conduct.
What happens when an NDA is breached:
- You can sue the person who violated the agreement for damages.
- You can get a court order that keeps the person from telling any more of your secrets.
- That person might have to pay you for any profit losses.
- They could end up in contempt of court, which means they might face criminal charges.
Some companies create confidentiality documents that say they do not have to keep your information secret. These agreements say that there is no confidential relationship, that information isn't given in secret, or that nobody is obligated if they receive information.
Reasons to Consider Using an NDA
You should use an NDA if the following applies to you:
- Need to protect information that your employees have access to.
- Want to sell your business.
- Want to buy a business.
- You are talking to a possible buyer about a product you made.
- Want to license your product to someone and have to show it to them.
- You are looking for a possible partner or investor and are showing them your product.
- You are an inventor doing business with other people or companies.
- Employ any freelancers or independent contractors who have access to your sensitive information.
- You are a freelancer or a consultant and want to know what information about the company you can't share.
When an NDA Doesn't Apply
- If someone knew information before they signed an NDA, the NDA does not cover that information.
- If someone learns things from a source outside the company.
- Common knowledge, and information you can get publicly.
- If information can be subpoenaed, it might not qualify under an NDA.
NDA Examples in the Real World
Hotmail founder Sabeer Bhatia had his roommates, friends, and employees sign over 400 NDAs. He thinks this secrecy gave him a six-month jump on competition creating similar programs. As a result, he got $400 million when he sold Hotmail to Microsoft.
Seek Legal Help
Do you need to create an NDA to protect your proprietary information? UpCounsel delivers the best intellectual property attorneys in your area. Post your job today to find a lawyer for all your legal needs.