Businesses are often presented with a non-disclosure agreement (otherwise known as a confidentiality agreement) and asked to sign it before a conversation with a potential business partner, investor, customer or supplier can commence. It’s important to review such an agreement prior to signing; non-disclosure agreements are binding legal contracts. The signatories to a non-disclosure agreement are often sued for breach so it’s important that you only agree to terms that you’re comfortable with and that you know you can comply with. This article covers the 4 most important issues to consider where reviewing or drafting a non-disclosure agreement.
1. Is the Non-Disclosure Agreement Mutual or One-Way
There are two main types of non-disclosure agreement; mutual or one-way. In a mutual non-disclosure agreement both parties agree to be bound by the confidentiality requirements of the agreement. This type of agreement is generally entered into when both parties are in the possession of potentially confidential information. It’s a more common type of non-disclosure agreement, and is fairer in the sense that both parties are protected.
In certain circumstances, however, one party might be a much more powerful position than the other. Alternatively, one party might not actually be in the possession of confidential. In such a situation the parties might agree to enter into a one-way non-disclosure agreement, where only one party’s information is protected.
2. Confidentiality Obligations
Perhaps the most important clauses in non-disclosure agreements are those related to the confidentially obligations. You need to read these sections very carefully in order to ensure that the information you’re providing will be protected adequately, or that you’re comfortable with the requirements set out in the obligations section.
Generally the party(s) obligations under a standard agreement will be:
(a) not to disclose the Confidential Information to any third party at any time;
(b) to use its best endeavours to protect the Confidential Information from any unauthorised disclosure;
(c) only to use the Confidential Information for the purpose for which it was disclosed by the Discloser and not for any other purpose; and
(d) to be responsible for and assume liability in relation to all of its employees, agents, consultants and contractors to whom Confidential Information is disclosed and ensure that they maintain the confidentiality of the Confidential Information and otherwise comply with the obligations set out in this Agreement.
3. Definition of Confidential Information
It’s important not to forget that the definition of what is and what isn’t confidential information needs to be reviewed carefully. A good generic definition is:
“Confidential Information” means any information or document about or in any way relating to the Discloser in any media or form that is acquired by or made available to the Recipient in the course of the relationship between the Parties, including but not limited to any information or documents about the Discloser’s business, organisational structure, activities, operating procedures, products and services, trade secrets and know how, finances, plans, transactions and policies.
4. Damages and Indemnity
Finally, it’s important to review the damages and indemnities clause in the non-disclosure agreement. It is standard practice that the wronged party can not only claim damages in cash, but also acknowledges and agrees that monetary damages may not be an adequate remedy for the Discloser and that the Discloser will be entitled to seek an injunction or any other remedy available at law or in equity that it considers appropriate in its absolute discretion in order to protect its Confidential Information from breach of the terms of the Agreement.
Conclusion
There are a number of issues you need to consider before signing a non-disclosure agreement. Although NDAs are relatively standard, they are serious contracts, so make sure you review the important clauses, and where possible have a lawyer review the document.