7 July 2022 by

Non-disclosure agreements explained

Non-disclosure agreements (NDAs) or confidentiality agreements are often used when an employee leaves their job or, indeed, to keep embarrassing information out of the media spotlight.  However, NDAs are also useful in a much wider range of situations – they can be a key document in essentially any commercial negotiations where one party is going to be sharing its confidential information with another.  Therefore, if two (or more) individuals or businesses are working together on a new project, they will often enter into an NDA first.

What is a non-disclosure agreement?

An NDA is an agreement between two or more parties promising to keep information confidential and not to disclose it to anyone else. This can be a mutual agreement, where the parties agree to keep each other’s information confidential, or it can be one-sided, where only one party is sharing information.

An example would be where a film producer shares a new movie pre-release with a film critic or journalist. As the movie has not been released to the public, the critic/journalist will enter an NDA to keep certain aspects of the movie secret until the movie is released.

The NDA will often set out the only purpose for which the recipient of confidential information can use information it receives (with all other uses being prohibited).  Using the above example, the permitted purpose could be for the receiving party to review the movie and produce an article for their website.

What is confidential information?

The NDA will define what constitutes confidential information.  The parties may have a clear idea of a specific piece of information that they want to protect, in which case the definition could be limited to that.  More commonly, however, the definition is kept very broad (e.g. “all information of a confidential nature”), followed by a list of examples.  The definition usually also makes clear what does notconstitute information – for example, information that was already known to the recipient.

Who can have access to the confidential information?

If the receiving party is an individual, they may be the only person who is permitted to have access to the confidential information. If, however, the receiving party is a company or other large organisation, the permitted recipients may then include employees, consultants, legal and financial advisors.

Termination of the non-disclosure agreement

The parties could agree that the NDA will last indefinitely or they could set an end date (e.g. a fixed number of years after the NDA is signed or, coming back to our example, the official release date of the movie). Other factors may lead to the termination of an NDA, such as when all the confidential information has been made public knowledge. If this happens, then there is nothing left to keep secret and the agreement is redundant.

Return or destruction of information

On termination of the NDA, or at the disclosing party’s request, the receiving party may be required to return or destroy the confidential information. This is so that the receiving party no longer has access to it. The agreement may set out specific instructions and timeframes for the return or destruction.

Breach of a non-disclosure agreement 

Where confidential information is disclosed in breach of the NDA, the ‘innocent’ party can seek to enforce the terms of the NDA in various ways.  These may include commencing legal proceedings with a view to receiving financial compensation or an injunction.  Despite these remedies, the consequences of a breach can be severe for both parties. The innocent party may have lost critical information required for their business or future projects.  Once this is in the public domain and therefore in the hands of competitors, it no longer holds the value that the innocent party has worked towards.

NDAs must be carefully drafted to ensure they are protecting you in the way you expect. If you would like us to review an NDA that you have received or to produce a new NDA for you or your business, please contact Tim Lucas.

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