A simple non-disclosure agreement (NDA) is a legal contract that prohibits someone from sharing confidential information. Confidential information includes, but is not limited to, proprietary information, intellectual property, and any other details that contain personal information. 

Non-disclosure agreements establish a legally binding relationship between two parties - the disclosing party and the receiving party. They are legal documents where the disclosing party reveals sensitive information to the receiving party. As such, the receiving party is legally prohibited from disclosing confidential information to any other entity. The goal of these agreements is to protect all parties involved in a business relationship. 

What Is a Non-Disclosure Agreement? 

A non-disclosure agreement may also be referred to by other names. 

  • Confidentiality Agreement (CA)
  • Confidentiality Clause
  • Confidentiality Statement
  • Confidential Disclosure Agreement
  • Proprietary Information Agreement (PIA)
  • Secrecy Agreement (SA)

No matter the term, a non-disclosure agreement is intended to protect a business's proprietary information and competitive advantage. It's critical to secure this agreement in writing before revealing any confidential information. This allows each party to understand their responsibilities and prevents sensitive information from getting into the wrong hands. 

Defining Confidential Information

The most important element of a non-disclosure agreement is the definition of confidential information. Confidential information should only be revealed for a specific purpose. Therefore, it's important to outline what that purpose is. 

Non-disclosure agreements need to be very specific. This will allow the scope of information to cover every element of the agreement. Essentially, any data or information that you may consider to be valuable, private, or sensitive, needs to be protected. To help you decide, here are a few examples of confidential information:

  • Business strategies
  • Business practices
  • Government information
  • Client rosters
  • Customer information
  • Designs, drawings, and documents
  • Financial information
  • Inventions
  • Marketing information
  • Prototypes or samples
  • Software
  • Trade secrets
  • Patent applications
  • Vendor lists
  • Written communication

Likewise, here are a few examples of what is not considered confidential information:

  • Public information, such as information available on Google
  • Information revealed in a lawsuit
  • Non-confidential information shared by someone other than the disclosing party, such as a third party

Verbal communication may also fall under the purview of confidential information. However, you'll want to ensure your verbal exchange of information is confirmed in writing immediately after the information has been disclosed. 

Elements of a Non-Disclosure Agreement

To start, a non-disclosure agreement should include an effective date, a disclosure period, and a termination date. The effective date outlines when the agreement to protect information begins. The disclosure period is the length of time in which the sensitive information is not to be shared with other parties. The termination date indicates when the agreement will end. The agreement may terminate after a transaction is complete, after a specific amount of time has passed, or whenever the agreement expires. 

Also, the term provision is very important. You want to make sure the term is long enough to protect your interests. The term should never present an unjust burden to the recipient of a non-disclosure agreement.

Other Non-Disclosure Agreement Provisions

Along with confidential information and term provisions, there are other common provisions found in non-disclosure agreements. Keep an eye out for any of these stipulations. 

  • A provision stating the discloser owns all confidential information
  • A provision that binds heirs to the same agreement
  • A provision asking for the return of confidential materials
  • A provision stating that an injunction may be filed if there's a breach in the agreement
  • A provision stating that disputes may be arbitrated

The Scope of a Non-Disclosure Agreement 

When outlining a non-disclosure agreement, it's important to understand what the document should achieve. For example, what type of information would you like to remain confidential? What steps must be taken in order to maintain its confidentiality? How long should it last? 

Try to avoid broad language. Remove anything that pertains to public information. Otherwise, you're unjustly tying someone to liability issues. What will be the consequences if someone breaches your non-disclosure agreement? 

Finally, will you be open to negotiations? Will you allow the document to be modified if something appears unjust? The creation of a non-disclosure agreement isn't something you'll want to do last-minute. Proper time and preparation will decrease the odds of a rebuttal from the other party.

If you need help with a non-disclosure agreement, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Stripe, and Twilio.