When do you need a non-disclosure agreement?

An obligation to keep business information confidential is rarely implied by law. If an organization or business plans to share sensitive information, they need to protect that information with a non-disclosure agreement, also known as an NDA or confidentiality agreement.

What does a non-disclosure agreement include?

NDAs have two different but important basic elements: What can the recipient do with the information, and who can the recipient share the information with, both inside and outside the organization. It may, for instance, say that the recipient can only use it to evaluate a product and can only share it with those who need to see it for that evaluation.

But be on the lookout for other things buried within an NDA. These agreements usually stick to non-disclosure concepts but occasionally contain unexpected provisions.

Why are some NDAs one-sided and others two-sided?

It depends on the context. If only one party shares information, it may only be important to protect that party’s information. If both parties share with each other, the obligations should be mutual.

Are there expectations to what can be used and shared?

Non-disclosure agreements will define what information is confidential.

The agreements may describe it or may require anything confidential is marked as confidential. (It’s always a good idea to mark anything confidential as confidential regardless.)

Typically, the definition has some narrow exclusions, such as independently developed information and information that becomes public.

Does a non-disclosure expire?

It depends on how an NDA is drafted. Some will apply to information exchanged within a fixed term but continue to preserve confidentiality after that. Some will say confidentiality only lasts for a specified number of years. I’m not a fan of limited time periods for confidentiality. If it is confidential now, it is probably still confidential a couple of years from now. My preference is to make confidentiality indefinite and rely on the information becoming public to end the obligation. The answer may depend on whether you are on the giving or receiving side.

How are NDAs enforced?

If parties violate an NDA, they can be sued for damages, or a court order could compel them to stop. Keep in mind that an NDA is only as good as the ethics of the party receiving the information. Having a non-disclosure agreement with an untrustworthy party or a party in other countries where enforcement is difficult may be hard to enforce.

Can confidentiality language be included in an agreement for goods and services?

A standalone NDA is typically used when information is shared in an early stage of a business relationship, such as testing a service, pitching an idea, or trying to negotiate a deal. Confidentiality language is often included in contracts for the supply of goods and services. A pitfall to avoid is signing an NDA upfront, and not dealing with it in the resulting contract. Contracts typically have entire agreement clauses saying that it is the entire agreement and nothing done earlier that survives. If the resulting contract does not expressly refer to the original NDA, it may no longer apply.

Final thoughts

Most non-disclosure agreements are typical and straightforward. But it is important to read them carefully to make sure they accurately describe what is confidential and that they are appropriate in the context of the parties, the reason for the disclosure, and what is being protected.

David Canton is a business lawyer and trademark agent at Harrison Pensa with a practice focusing on technology and privacy issues and technology companies. Connect with David on Twitter and LinkedIn.

Image credit: ©Tim – stock.adobe.com