If you want to share commercial information with a future business partner or another company, a non-disclosure agreement (NDA) can help ensure that this information remains confidential. An NDA is used as an initial agreement for parties to enter into before commencing discussions in which those parties will share and access sensitive information before deciding to enter into any further arrangements. This may include a new business idea you want to discuss or an investment opportunity you want to review. This article looks at the six most important things to consider when reviewing or drafting an NDA.
1. Is the NDA Mutual or One Way?
An NDA may be ‘mutual’ or ‘one way’. If both you and the other party plan to share confidential information that needs protecting, the NDA can impose obligations on both parties not to share the information. This two-way or mutual agreement may make the deal more palatable for both parties, rather than only protecting one party’s information. However, if only one party is disclosing information, a one-way NDA may be more appropriate.
2. How Long Is the Agreement?
Your NDA should outline the duration of the agreement. This is important so that both parties clearly understand how long they are required to keep the information confidential.
Importantly, you would also have a clause stating that the information will no longer be confidential if it becomes part of the public domain. This is because anyone can see the information, and you cannot prevent them from viewing it.
Continue reading this article below the form3. NDA Confidentiality Obligations
It is essential that you clearly outline the obligations of each party under the NDA in specific terms and conditions. This typically includes a promise to:
- not share the information with any third party;
- treat the confidential information using the same care and respect as the party sharing the information;
- only use the information for the purpose provided;
- protect the information from unauthorised disclosure and notify parties to the NDA of any breaches; and
- only share confidential information with personnel on a need-to-know basis.
4. Definition of Confidential Information and Purpose
If you are sharing information with another party, ensure the definition of confidential information is as broad as possible. Accordingly, try to cover all types of documents and material. This will include material like:
- commercially sensitive documentation;
- oral conversations;
- ideas;
- plans and designs discussed during meetings;
- business models;
- notes; or
- records.
The definition of confidential information may be similar across most NDAs. However, the purpose of the NDA must be clearly defined. The purpose of the NDA is the reason why the parties are entering into an NDA.
5. Return of Confidential Information
If you are sharing confidential information for a certain period, you likely want all records of the information returned or destroyed when the agreement ends. You may also require the deletion or return to be certified in writing.
For example, you may enter into discussions with a potential technical co-founder regarding a new app idea. You can agree in writing that the other party must destroy your designs and plans for the app following your negotiations. This will be very important if your venture does not proceed.
6. Damages
If the other party breaches your NDA, you may suffer losses due to the disclosure of your confidential information. Your agreement should outline what remedies will be applicable in this event. Monetary compensation may be insufficient in the circumstances, so you may request that a court order the other party to stop the continued release of confidential information (called an injunction).
Other NDA Considerations
The purpose of your NDA is not to:
- protect your intellectual property (IP); or
- be a complete agreement governing your terms and conditions when engaging with a business partner or contractor.
As mentioned, an NDA is an initial document used prior to entering into any deals. Your terms and conditions can discuss IP, your business relationship, and further confidentiality requirements in more detail. This will be an essential document if you progress further with the relationship with the other party.
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Key Takeaways
You must know when you will need an NDA. If you are disclosing any commercially sensitive information, ensure you obtain an NDA prior to such disclosure. Furthermore, make sure your NDA is thorough and protects you when you disclose information. This involves determining whether a mutual or one-way agreement is most appropriate for your circumstances. Moreover, it is vital that you clearly outline the period in which the information must remain confidential and the obligations of each party to ensure that it remains secret. It is equally as essential to ensure that:
- your agreed-upon definition of the purpose and confidential information covers all material you are concerned about;
- any records of confidential information will be returned or destroyed upon the end of the agreement; and
- you will be fairly compensated for any breaches to the agreement.
If you need any assistance drafting an NDA, our experienced contract lawyers can help you draft and review your NDAs as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 1300 544 755 or visit our membership page.
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