A non-disclosure agreement (“NDA”), also known as a confidentiality agreement, is a legally binding contract that establishes a confidential relationship between two or more parties. An NDA is typically made between employers and employees, companies and independent contractors, or two or more unrelated companies.
NDAs help to establish that confidential information remains protected for your business in a legally binding way. Generally, NDAs include six key elements:
- Identification of the parties (and any affiliates) subject to the agreement and whether the agreement is mutual
- Definition of confidential information, the scope thereof and any exclusions. Confirmation of whether personal identifiable information (“PII”) consumer/customer information will be shared. If yes, adequate provisions requiring the protection of PII and compliance with applicable law including but not limited to the Gramm Leach Bliley Act of 1999 (“GLBA”)
- Disclaimers of warranties and representations
- Standard of care applicable to protecting confidential information and parameters for producing it as may be required by applicable law, rule or regulation
- Retention period, destruction policy, and termination date the agreement
- Controlling law, relief available for breach and agreed upon venue
Do you need an attorney for a non-disclosure agreement? While you are under no legal obligation to use an attorney for drafting and negotiating an NDA, it is highly recommended that you do so. If not correctly drafted, an NDA could result in an information security breach, trade secret misappropriation, copyright infringement, etc. A knowledgeable business attorney specializing in contracts can ensure that the NDA drafted for you, or your business is customized to suit your particular situation.
Who needs an NDA?
NDAs are commonly used by businesses when confidential information is going to be disclosed to investors, clients, or employees, or when a business is entering into negotiations with another business, and they usually serve several functions:
- Protection of sensitive information;
- Preservation of intellectual property and/or proprietary information;
- Serves as written confirmation of each party’s understanding of what is considered confidential information.
Information that is considered “confidential” can include such things as:
- Business records and plans
- Financial information
- Trade secrets and/or original research
- Inventions/product ideas
- Technical data or designs
- Contract details or partner lists
- Sales leads and marketing strategies
- Customer or client lists
- Pricing and discount thresholds
Non-disclosure agreements provide security to individuals and/or businesses so that they can share sensitive information without worrying that it is going to end up in the hands of a competitor, for example. However, an NDA may limit or exclude the parties’ liability for special, indirect, or consequential damages where one party breaches its obligations of confidentiality. The result? Severe consequences for the individual or business owner who is disclosing sensitive or proprietary information.
Enlisting the services of a non-disclosure-agreement attorney can help you draft an NDA that clearly defines confidential information, minimizing the likelihood of breach while maximizing your chances for winning a lawsuit in court in the event that an unauthorized disclosure occurs.
Should you sign an NDA?
NDAs are fairly common in the business world. However, you should consider these factors prior to signing:
- Why are you being asked to sign an NDA? Be leery of agreements labeled as an NDA that include partnership provisions, exclusivity clauses, or anything that seems beyond the scope of protecting confidential information
- Consider the scope of information you are being asked to protect and the measures required to protect it – can you comply with the terms?
- How long will it last – there should be a stated termination date
- What are the consequences of breaching the agreement
Creating an NDA for your Business
When it comes to the process of establishing a non-disclosure agreement for your business, it is in your best interest to get help and advice from a qualified contract attorney who can ensure that the six key elements of NDAs are clearly stated and the nuances of your business are factored in.
The Leo Law Office, located in San Diego, can help with all of your contract, compliance, and information security needs.