Understanding A NDA (Non-Disclosure Agreement)

As we were discussing in the previous article about protecting an idea, sometimes it becomes important for a start-up or even for an established business to protect their idea, or to make sure that the confidential information they are revelling to someone is not used for their own detriment.

The best thing to do in such cases is to use an NDA, Non – disclosure agreement also refer to as a confidentiality agreement (CA), confidential disclosure agreement (CDA), proprietary information agreement (PIA) or secrecy agreement (SA).

In this article we will discussing everything to know about an NDA and the application and legalities of NDA in Indian Standards.

First of all let’s take a look at NDA in details for those who are not familiar with the same. An NDA is a legal contract between at least two parties that outlines confidential material, knowledge, or information that the parties wish to share with one another for certain purposes, but wish to restrict access to or by third parties. It is a contract through which the parties agree not to disclose information covered by the agreement. An NDA creates a confidential relationship between the parties to protect any type of confidential and proprietary information or trade secret. As such, an NDA protects non-public business information.

There are some scenarios in business where signing an NDA is essential, lets a take a look at those scenarios to understand the use cases of NDA in detail.

• Presenting an invention or business idea to a potential partner, investor, or distributor
• Sharing financial, marketing, and other information with a prospective buyer of your business
• Showing a new product or technology to a prospective buyer or licensee
• Receiving services from a company or individual who may have access to some sensitive information in providing those services
• Allowing employees access to confidential and proprietary information of your business during the course of their job

Now when you look at it many of these scenarios are applicable for an established business as well as for a start-up. Having a proper understanding of an NDA will help you take the right steps at the right time. Since most of the start-ups will not be having any lawyer support, it is important that the founders have a proper understanding of some of the legal side, especially when it comes to an NDA.

Normally you will come across NDA in 2 ways, a standalone non-disclosure agreement or a as a confidentiality clause in other documents. I will be discussing a standalone agreement more in this article, with some mentioning of the clause as well. This will help you get an Understanding of the NDA.

Now let try to understand an NDA. A standalone non-disclosure agreement includes the following:

1. Introducing the parties.
2. Reason for signing the agreement.
3. A definition of the information that is considered confidential.
4. A description of any information that is excluded from confidentiality
5. A description of the receiving parties obligations
6. Time period ( Validity)
7. General Terms.

Now there are different types of NDA available out there, no matter the size of the agreement these will be the basic contents of the agreement. Let take a look at these points in details.

Introducing the parties.

When you take a look at any agreement, this is one of the most important part of the agreement. Adding the proper legal name of the company is really important that is what makes it a proper agreement. Now since this is a part you will see in any agreement we will be discussing this latter in another article regarding general agreements.

Reason for signing the agreement.

This is included in some agreement and not considered as an important part anyway since this is a part you will see in any agreement we will be discussing this latter in another article regarding general agreements.

Definition of the information that is considered confidential.

When you hear about this, I know what you people are thinking, how will I define all the things I want to keep confidential? It’s actually simpler that you think, and in most of the NDA, this is a standard clause.

For example most of the NDA defines “confidential information” like this

“Confidential Information” shall mean

1. all information or material labelled “Confidential” or “Proprietary” regarding techniques, drawings, models, inventions, technical know-how, processes, algorithms, software programs, software source documents, application programmer’s interface (“API”) and formulae related to the current and proposed products and services of each of the Parties;
2. all information or material labelled “Confidential” or “Proprietary”, concerning research and development, that is disclosed by the disclosing Party (“Discloser”) to the receiving Party (“Recipient”); (iii) all information or material labelled “Confidential” or “Proprietary” relating to actual and potential customers, financial data and information, business plans, marketing materials and strategies.

With this definition we made sure that all of the materials you shared with the other party is confidential.

Now what do you do about the details you talked about, what will you do if you need to protect them as well. Its simple you add one more definition

 

3. If a Party discloses Confidential Information visually, orally or in any other manner incapable of physical marking to the other Party, Discloser shall inform Recipient that such information is confidential and proprietary at the time of the disclosure, shall reduce the Confidential Information to writing and label it as such, and send the writing to Recipient within thirty (30) days of the disclosure.

Description of any information that is excluded from confidentiality

This is also a standard description, there are some thigs we normally exclude from an NDA, things like:

1. Information which was in the public domain at or subsequent to the time it was communicated to Recipient by Discloser through no fault of Recipient.
2. Information which was rightfully in Recipient’s possession free of any obligation of confidence at or subsequent to the time it was communicated to Recipient by Discloser
3. Information which was developed by employees or agents of Recipient independently of and without use of any Confidential Information of the other Party
4. Information which was communicated by Discloser to an unaffiliated third party free of any obligation of confidence.

There is one more case were disclosing a confidential information is not considered in viaation of the agreement and considered as an exclusion of confidentiality

5. A disclosure of Confidential Information in response to a valid order by a court or other governmental body

Description of the receiving party’s obligations

Normally this section deals with things like.

1. Use of Confidential Information. This clause will prevent the information to be used for anything other than the purpose it was shared for.
2. Sharing of the Confidential Information. This clause deals with the receiving party’s authority to share the information. ( Normally with employees and needed third parties)
3. Storage of the confidential information. This clause deals with the way in which the confidential information is kept. This will change as per the confidential nature of the content. The normal system is to ask the receiving party to store it similar to how it will store its most confidential information.

Time period (Validity)

This section deals with the time period for which the legality of the confidential agreement will expire. Since this is a part you will see in any agreement we will be discussing this latter in another article regarding general agreements.

General Terms.

Since this is a part you will see in any agreement we will be discussing this latter in another article regarding general agreements.

Important things to consider before you sign a NDA

1. Read the NDA properly and ask yourself whether it creates any obligations that you will have trouble fulfilling. If so, discuss these with the person who asked you to sign the NDA and see if you can renegotiate the terms.
2. Beware of an agreement that might look like an NDA but has just the opposite effect. This sort of clause will typically say that the agreement does not create a confidential relationship or does not create any obligation of secrecy or confidentiality. That means that the other party has no obligation to keep any of your confidential information secret.
3. Understand that this is just an NDA and this does not provide you with any assurance of money or work, so keep this in mind when you sign something.
4. Beware of clauses that is hidden inside a NDA.

Now to understand this better take a look at some of the case studies in my next article “NDA – Case Study”. As part of my business I have reviewed many NDA’s and I will be giving you some case studies from my experience in that article.

Download a non-disclosure agreement online from Start-up Sutra. 

1. General Mutual Non-disclosure agreement
2. Non-disclosure agreement for Outsourcing Software Development Service

The Non-disclosure agreements provided here are free to downloaded and are provided for the purpose of educating the community and to help the startups. We recommend that you read and make the necessary editing needed before using this agreements.