What Is the Purpose of Confidentiality Agreements?
The purpose of a confidentiality agreement, which is also referred to as NDA, is to protect information exchanged between two or more parties.3 min read updated on February 01, 2023
The purpose of a confidentiality agreement, which is also referred to as a nondisclosure agreement or NDA, is to protect information exchanged between two or more parties. Anyone who signs a confidentiality agreement is promising to keep the relevant information secret.
Confidentiality agreements are often used to protect details of new products, client lists, details of marketing campaigns, and information regarding distinctive manufacturing procedures. By using an NDA, a company can keep its trade secrets private. Moreover, if one party to the agreement fails to uphold its promise, the other party will have the option to take legal action and possibly to sue.
Types of Nondisclosure Agreements
- Nondisclosure agreements can be reciprocal contracts, which means that all parties involved must uphold the privacy of the information.
- They can also be unilateral contracts, whereby only one party is required to keep the relevant information private.
- Mutual nondisclosure agreements are beneficial when both parties involved will be using the restricted information, for example, in the case of inventor groups.
- Standard unilateral NDAs, which are most frequently seen in the area of innovation, are utilized when just one party will be conveying the restricted information. This might be to a possible investor or a licensee.
The Importance of Confidentiality Agreements
If you are planning to refer to your important information as a trade secret, then it is essential that you take measures to maintain the confidentiality of that information. Therefore, a contract that requires the receiver of the information to uphold its confidentiality is crucial. As soon as a trade secret becomes known, then it loses its trade secret status.
An NDA can be used to safeguard any kind of information that is not widely known. Under a nondisclosure agreement, the recipients of the information are required to keep that information private. It also makes it illegal for them to pass that information on in any way that would result in the information no longer being a trade secret.
Creating a Confidentiality Agreement
- When drawing up a nondisclosure agreement, you are establishing a private relationship with the other party involved.
- Typically, these agreements must be made in writing.
- Some courts in certain jurisdictions have allowed for the oral establishment of confidential agreements.
- Other courts accept that actions can be seen as proof of the establishment of such a confidential agreement.
- However, a party should never solely depend on actions or on an oral agreement, as a court may not enforce it.
Oral Agreements Versus Written NDAs
It is extremely hard, and sometimes impossible, to prove the existence of an oral confidentiality agreement. It is equally difficult to prove that past actions implied the establishment of an agreement because both parties might have conflicting stories. Generally, if a party claims the existence of an oral agreement, the case will be judged in favor of the person who is believed.
Therefore, it is best to avoid this situation from occurring by trying to get the agreement in writing. If necessary, you could dilute the terms slightly and make the agreement simple to get a signature. In fact, although a straightforward NDA seems more accessible, it could leave the party providing the information with more rights.
For instance, a simple NDA might not contain any terms that would relieve the recipient of his or her duty to keep the trade secret in the case that secret information becomes publicly known. In a more complex NDA, this is a provision that's typically included.
NDAs and Patents
- If you have an invention but have not yet applied for a patent, creating a confidentiality agreement is crucial.
- Even if you have already filed the patent application, you can still get the nondisclosure agreement signed.
- You will have taken the first steps by creating the confidentiality agreement. However, your patent rights will not be established until the patent application is approved.
- Therefore, a confidentiality agreement is necessary to maintain secrecy until the patent is approved.
- Moreover, while revealing an invention, it's also possible that you will reveal marketing plans and other details not outlined in the patent application. These details could also be considered a trade secret.
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