NDA stands for Non-Disclosure Agreement which is utilised to safely share personal data and information which is confidential such as trade secrets and inventions that are unpatented, with another party. It is also called confidentiality non-disclosure agreements, confidentiality agreements, or proprietary data and information agreements. This kind of agreements allows courts to provide relief for unauthorised data and information which is confidential in nature.
There are three types of Non-Disclosure Agreements:
Unilateral Non-Disclosure Agreements
Unilateral Non-Disclosure Agreements, also known as one-way Non-Disclosure Agreements, only require one party to disclose confidential data and information to the other party. They are the most basic type of Non-Disclosure Agreement.
Here are the most basic types of unilateral Non-Disclosure Agreements:
A) Employer-Employee Non-Disclosure Agreements- Employers often require employees to sign these non-disclosure agreements once they are hired. These agreements limit the employees from divulging important company data and information, such as:
- Trade secrets
- Business and development plans
- Pricing data
- Supply sources
- Operation plans
- Merchandising systems
- Technical data and information such as projections and inventions
B) Company-Recruiter Non-Disclosure Agreements- Companies can use these non-disclosure agreements to limit recruiters from sharing confidential company data and information. Like employer-employee non-disclosure agreements, company-recruiter non-disclosure agreements restrict recruiters from sharing critical business data and information that could reduce the company's competitiveness. Companies will add a detailed provision to avoid conflict of opportunities clauses and non-competition clauses to this non-disclosure agreement to limit recruiters from using the knowledge they’ve gained while working at the company. Recruiters are independent workers who have more flexibility and autonomy than employees. Companies will impose more limitations on recruiters to prevent them from using and sharing data and information that could affect competition.
C) Inventor-Evaluator Non-Disclosure Agreements- Inventors can use unilateral non-disclosure agreements to protect their inventions from being patented, used, or marketed by the evaluator. These non-disclosure agreements also limit evaluators from using and disclosing the inventors:
- Business operations, including the inventor’s financial data and information, vendor data and information, internal cost data and information, external business contacts, and the methods and manners of conducting business
- Customer data and information, including the names of the customers, their contact data and information, and the data they provided
- Any intellectual property
- Service data and information, including all data related to the inventor’s products and services
- Accounting data and information, including all balance sheets, company liability data and information, expense reporting, and profit and loss reporting
D) Seller-Buyer Non-Disclosure Agreements- Sellers can use non-disclosure agreements to limit the buyer from sharing confidential data and information that the buyers were exposed to during the sale of goods or services. They usually control the buyers from sharing the following:
- Business operations, such as the seller’s financial and internal data and information
- Any intellectual property
- Processes about production, including the processes used in the creation, manufacturing, and production of the seller’s products and services
- Computer technology, including all technical and scientific data and information about any process or machine used by the seller
Bilateral Non-Disclosure Agreements
Also known as mutual non-disclosure agreements or two-way non-disclosure agreements, bilateral non-disclosure agreements require both parties to disclose their data and information, which is confidential to each other. Both parties can limit other parties' use and share their data and information. Bilateral non-disclosure agreements are used in situations where parties are required to exchange a lot of personal business data and information during negotiations. It includes all kinds of takeovers in the corporate world, joint ventures, and mergers and acquisitions.
Multilateral Non-Disclosure Agreements
Multilateral non-disclosure agreements or multiparty non-disclosure agreements involve three or more parties where at least one of them will disclose data and information to the other parties. These agreements eliminate the need for separate bilateral or unilateral non-disclosure agreements between two parties. For example, you can enter into a single multilateral non-disclosure agreement with parties A, B, and C instead of entering into three separate bilateral non-disclosure agreements between A and B, B and C, and A and C. Multilateral non-disclosure agreements are often found in complex, negotiation-heavy deals. A typical example of this type of non-disclosure agreement is a multiparty confidentiality agreement. Three or more companies can use this agreement to ensure that each party is only disclosing confidential data and information so that each party can determine whether it is engrossed in entering into further agreements.
Importance of Non-Disclosure Agreements
- Non-disclosure agreements are an important legal framework used to protect confidential data and information from being made available by the recipient.
- Companies and start-ups use these documents to ensure that their good ideas won’t be stolen by the people they are negotiating.
- Anybody in breach of a Non-Disclosure Agreement will be subject to lawsuits and penalties commensurate with the value of lost profits. Criminal charges may even be filed. Non-Disclosure Agreements may be unilateral, whereby only the recipient of the data and information is required to keep silent, or mutual, where both parties agree not to share each other’s sensitive data and information.
- Whenever a business entity is engaged in an essential commercial discussion, it is always important to ensure a Non-Disclosure Agreement is signed between the parties, instilling confidence and trust, which can assist in open negotiations.
- As stated above, signing a Non-Disclosure Agreement grants more trust between the parties signing the agreement and ensures that despite heavy negotiations, agreements or disagreements, the data and information are always protected. It deters the theft, misuse, and misrepresentation of intellectual property.
- A non-Disclosure Agreement is signed at the beginning of the negotiations between business entities, even when it is still uncertain whether the parties will agree to come together to enter into a business agreement.
- In such circumstances, data and information is shared between parties to evaluate and analyse the market and make predictions about future projects.
- A non-Disclosure Agreement is also essential to protect data and information from being misused or shared with a third party by an intern or an employee of a business entity.
- The primary intent behind the signing of a Non-Disclosure Agreement is to protect data and information sharing; therefore, it ensures that the privacy and confidentiality of data and information sharing are safe as it reduces the scope of breach of any disclosures, which will give the aggrieved party a resort of suing the other party. Since Non-Disclosure Agreement is a legal document, it is of immense importance for avoiding and resolving any conflict that might arise in the future. In some cases, the party infringing the agreement would be legally liable to compensate for damages.
- It clearly states (in written format) that anything that comes under the bracket of ‘confidential’ in the long run avoids ambiguity or loss of data and information. Overall, a Non-Disclosure Agreement protects intellectual property disclosures (including trade secrets, proprietary data and information, and other confidential data and information), safeguarding a business entity.
The Confidential Information Clause in the Non-Disclosure Agreement clearly defines the ‘confidential matter’ for which the Non-Disclosure Agreement is entered between the parties. It helps maintain secrecy between the parties by binding them legally through different clauses constituted under the non-Disclosure agreement. This forbids the receiving party from disclosing confidential information. Different clauses of the Non-Disclosure Agreement also draw the timeline up to which the party is obliged to maintain secrecy. This period could be beyond the effective period of the agreement itself. Any kind of Non-Disclosure Agreement is legally binding. Thus the party infringing the agreement would be liable to compensate for the damages to the aggrieved party.