The primary purpose of a confidentiality agreement is to establish a legal framework of trust before parties begin exchanging sensitive information. Using an NDA is essential when your company enters a new business relationship.
This legal document serves as a protective shield when sharing confidential information, such as business plans, financial information, and research and development details. The key is to ensure that this data does not enter the public domain or become public knowledge, providing your business with a crucial competitive advantage and security.
A simple confidential agreement usually involves two parties: a disclosing party and a receiving party.
The disclosing party is the one that controls the private information and intends to share it with someone. The receiving party is the individual or entity that receives the confidential data and is obligated to protect it.
Keep in mind that while non-disclosure agreements primarily protect the disclosing party, they can also offer some protection to the recipient in the event of a dispute.
The main types of confidentiality agreements are unilateral and bilateral contracts. Here is what you know about each agreement:
This is a one-sided agreement that only restricts the recipient. It is relatively more common and used by businesses to enforce restrictions on employees.
This is a confidentiality agreement that holds two parties or more accountable for protecting each other’s information. It is commonly used in the case of a collaboration between two companies.
Other notable types of disclosure agreement NDA you should be aware of include:
Investor confidentiality agreement: Used to protect sensitive information and business plans of companies seeking investment.
Employee non-disclosure agreement: Serves to prevent employees from using a company’s proprietary information outside of its interests, even after they leave the company.
Interview non-disclosure agreement: Protects a company from rejected job applicants who had access to confidential information and might misuse sensitive data.
Most confidentiality agreements are primarily used to protect proprietary business information. This may include:
However, you should note that there are no limits to the type of non-public information a confidentiality agreement can seek to cover. For instance, you may opt to protect information on executive salaries.
The content of confidentiality agreements can vary extensively depending on factors like the type of confidential information and the parties involved. However, based on our experience, five main components must always be considered. These are:
This component describes what the disclosing party considers sensitive or private, defining the parameters of the confidential information.
On the one hand, the disclosing party targets more inclusive definitions of confidential information. On the other hand, the recipient typically seeks narrow definitions. Both interests should be balanced to ensure the agreement is reasonably enforceable and inclusive.
This part indicates how a recipient must handle the subject confidential information in the agreement. For example, the contract may spell out guidelines for using and sharing the information. By specifying such details, the agreement comprehensively describes what constitutes a breach.
In this section, the disclosing party states the instances where the obligations of confidentiality will not apply. For example, you can exclude cases where confidential information becomes public without the recipient’s action. You can also provide additional exceptions specific to the nature of the confidential information and the parties involved.
This part typically reinforces and protects the disclosing party’s ownership of the confidential information. It addresses any ambiguity regarding the recipient’s rights to the information. In principle, the recipient should acknowledge that obtaining access to confidential information does not imply any rights to use or disclose the information.
This component specifies a confidentiality agreement’s timeframe. The term length can be bound either by a specified amount of time or by occurrences without a timestamp, such as the eventual launch of a service or product.
However, you can elect to have a confidentiality agreement with a specific endpoint. Regardless of the presence or absence of a term length, a confidentiality agreement should outline the conditions under which either party can terminate the contract prematurely.
Where trade secrets are involved, however, post-termination protections are important to consider so long as information qualifies as trade secrets.
A confidentiality agreement should specify the remedies or legal recourse for the disclosing party in the case of a breach. Many potential remedies exist depending on the type of information disclosed and the nature of the contract.
For example, you could consider imposing financial penalties or restraining orders. Note that it is the harmed party that bears the burden of proof in a confidentiality breach court case.
A breach of a confidentiality agreement can lead to severe consequences for the infringing party. These can include:
Simply downloading a template online is not enough. A generic confidential agreement can contain vague language or miss critical clauses, making it unenforceable in court.
Having an experienced legal counselor review or draft your NDA ensures it is tailored to your specific needs and complies with all local and national laws. This proactive step is crucial to protect confidential information effectively.
Confidentiality agreements are complex legal tools available to all business entities with confidential information. You should seek the assistance of experienced attorneys to avoid the irreversible breach of information, which can have severe implications for your emerging or mid-size company.
Crowley Law LLC is ready to be your legal counselor as you aim to protect your confidential information. Here are some of the ways we could assist:
We can draft agreements that are specifically tailored to the needs of your company, taking into account the nature of the business, the type of information to be protected and the context in which the contract will be used. We can also ensure that essential clauses are included, such as the definition of confidential information, are included.
We can ensure that your confidential disclosure agreements comply with local, national and international laws. We can also structure the agreements to protect intellectual property rights effectively, which is crucial for tech and life sciences startups developing new technologies, products or services.
We can negotiate terms on your behalf, ensuring the confidential agreement is fair, balanced and not overly restrictive or unenforceable. We can also assess the risks associated with disclosing confidential information and negotiate terms that mitigate these risks.
In the case of a breach, we can help enforce the terms of your agreement and seek relevant remedies. We can also advise on preventative measures to avoid breaches, such as regular training for employees on confidentiality obligations.
We can help update your confidentiality agreements to reflect new business realities as your startup grows. We can also perform regular reviews of the agreements to ensure they remain effective and legally sound, making adjustments as needed.
While there’s no guarantee that confidentiality or non-disclosure agreements will hold up in court based on the facts and circumstances of a particular case, they are legally binding documents. Parties found to be in breach of a confidentiality agreement are subject to the remedies in the contract.
Confidentiality agreements should specify a fitting term length agreed upon by the disclosing party and recipient. However, most contracts of this type, especially non-disclosure agreements, can last indefinitely.
