Startups, Here is Why Non-Disclosure Agreements are Important For You

24th Oct 2011
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Lawyers from VakilSearch shed some light on thisWhat is a non-disclosure agreement?

A non-disclosure agreement (we will refer to it briefly as NDA”) is also referred to as a confidentiality agreement, confidential disclosure agreement or secrecy agreement.

It is a contract that has been entered into between at least two parties that defines information of a confidential nature that the parties wish to share with each other given the nature of their transactions, but wish to restrict third party access to.

An NDA does two things:

First it describes the nature of the information that is or may be deemed ‘confidential’ given the nature of the relationship between the parties, AND,

Secondly, it precludes either party from disclosing such confidential information to any third party before, during or after their transactions with the other party or parties.

NDAs are most commonly entered into between two businesses although two individuals may also enter into them in order to effectively conduct their transactions. Typically, one party insists on an NDA while disclosing any information pertaining to its business practices, business procedures or HR policies.

NDAs, depending on how they are structured, may be mutual, restricting the disclosure of confidential information by either party, or they may even be one-sided, restricting the disclosure of information by a single party.

Why are NDAs important?

A unique idea or model is vital for any business to succeed. Therefore, it is critical to protect any confidential information. In order to safeguard business secrets and keep them from being disclosed by another party or the business’s employees, NDAs are a must.

An NDA has the following advantages:

1.It emphasises the importance of non-disclosure. The likelihood of trade secrets being divulged inadvertently by idle gossip or chance comments is hence minimised.

2.NDAs act as deterrents to any party who might consider deliberate disclosure. Such a person will understand that there will be consequences to their actions.

3.Should a violation occur, an NDA will be of advantage in a court of law during proceedings, and are the strongest (if not the only) safeguard for the affected party.

What can be protected through an NDA?

All the information regarding the company, whether or not it be in writing, of a private or confidential nature concerning the company’s business transactions or nature or the financial affairs of the enterprise is the exclusive property of the company. Such information may include processes, products, methods, techniques, formulae, compositions, compounds, projects, development plans, research data, clinical data, financial data, personal data, computer programmes, customer and supplier lists, and knowledge of the customers or prospective customers of the company.

NDAs may also be entered into to protect any manner of trade secret, i.e., any information that is not known to the public and gives the enterprise in question a hidden competitive edge in the market. For instance, one may, through an NDA, prohibit a party from disclosing a secret invention design, an idea for a new website or confidential material contained in a copyrighted software programme.

General content of an NDA

Basic clauses contained in any NDA are:

1.Who are the parties to the agreement?

2.What is confidential? i.e. the information to be held confidential.

3.For how long? The disclosure period - information should not be disclosed during the disclosure period, and the duration of the confidentiality agreement.

NDAs may be either unilateral or mutual. In cases of unilateral NDAs, one party discloses certain information to another party but needs to make sure that the other party does not take and use the disclosed information. In cases of mutual NDAs, both parties may be supplying information that is intended to remain confidential. This type of agreement is common when businesses are considering some kind of joint venture or collaboration.

NDAs can protect any information that is not publicly known. However, NDAs may also contain clauses that will protect the person receiving the information so that if the information was lawfully obtained or obtained through other sources there would be no obligation to keep the information secret.

For instance, A tells B about a new project he is about to begin. B has already heard about this project from C. B can claim that there was no obligation of confidentiality and can be protected if the agreement grants him/her this protection.

About VakilSearch

VakilSearch is India’s leading online legal services provider for businesses and individuals. As the official partner of the Confederation of Indian Industry (CII) and knowledge contributor to Sulekha.com, the Hindu Business Line, Entrepreneur Magazine and the All India Rubber Association, VakilSearch reaches out to thousands of businesses, entrepreneurs and individuals on a regular basis. So when you visit vakilsearch.com, you can be assured of quality legal guidance and comprehensive documentation for your business and personal needs, at affordable prices.

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