Non-Disclosure Agreement

Introduction

A Non-Disclosure Agreement (NDA)[1] is an agreement during which one or more parties to an agreement agree to not disclose the  confidential information as per that agreement. These agreements also are called a Confidential Agreement (CA), a Confidential Disclosure Agreement (CDA), a Secrecy Agreement (SA) and a Proprietary Information Agreement (PIA). It outlines the information  that are confidential and denies the access of that information to any third party. 

In India, for the validity and enforceability of the NDA, which are to be stamped. The agreement  is governed by the Indian Contract Act, 1872. NDAs are often entered into by the parties so that it can help in protecting the intellectual property rights like databases, client lists, proprietary information, sensitive business-related information of a person or business etc. It also helps the parties to understand their duties and privileges better by writing down their Non-Disclosure Agreement

Types of Non-Disclosure Agreements

NDA are of three types:-

  • Unilateral NDA: It  involves two parties, out of that only one party discloses  data to the opposite and expects that the data is prevented from any longer revelation.
  • Bilateral NDA: It involves two parties; each the parties disclose data to every different party, and each of them shall protect the information from being disclosed to another.
  • Multilateral NDA: It involves three or more than three parties to the agreement, out of that one amongst the parties discloses the information to other parties and wishes that information is protected  from any  further disclosures

Functions

Although they are used by various businesses for different matters, here are 3 key functions that an NDA completes:

Defines Confidentiality

An NDA clearly defines the facts, figures and styles that are to be treated as confidential  or others that may be considered as information  for public use. Most NDAs embrace exclusions that mention knowledge that’s mirrored as common knowledge and don’t have to be compelled to be protected. This issue may be crucial while designing and implementing projects for a product or company.

Protects Information

It assures confidentiality of the information for a business owner. The expanse of information secured under an agreement may be virtually limitless. From password details and company codes to client lists, business  owners can  enlist ANy private information under  the agreement. This feature is extremely helpful and protective of patent rights of an investor.

Reimburses Damages

If there is a breach of the contract the signers of an NDA are held legally liable for disclosure of any private information discussed or shared from their end.

When to sign a Non-Disclosure Agreement?

A Non-Disclosure Agreement should always be put down in writing.

1) NDA whereas stepping into a business deal: While moving into a business deal, like hiring a marketer or supplier , if one needs that the that he/she informations sharing with those vendors or service suppliers, does not become public, then stepping into NDA could be  beneficial.

2) Starting a new project: While starting a new project there is a  need to collaborate with a few people, even when commercials are not explicit, or company or partnership isn’t framed, and there is no IP to protect yet, in such a situation entering into an agreement is beneficial.

3) NDA clauses in contracts: It provided that the NDA clause is inserted into all and varied contracts as a section of special precaution. Unless a section demands its removal, it usually stays. It helps each party on the entire, as business details got to be treated with caution and can’t be leaked to the media, etc., without a doubt even once conflict arises within the course of doing business.

4) NDA to protect trade secrets: Although this is not practice in India yet but it is advisable to sign a trade secret non-disclosure agreement to protect such information which is shared by the parties while carrying out trade practices.

How does an NDA protect Intellectual Property Rights? 

Nowadays, one  of the foremost helpful and valuable properties closely-held by an organization is  the Intellectual Property Rights. These properties or assets may conjointly meet debts, commitments or legacies. Corporations take appropriate steps to protect their Intellectual property Rights and  to make use of that property expeditiously.  Corporations defend their Intellectual Properties in many ways. One of the ways is by stepping into a “Non-Disclosure Agreement”. This confidential document or agreement lets the corporate share its property with those whose input it desires while not even putting a risk of loss, damage or failure that the knowledge would be shared with anyone else. If an organization incorporates a new product, and has to consult with an expert  for advice on a way to defend them, the non-disclosure agreement makes positive that the authority doesn’t disclose that information to the competitor of the corporate itself.

Important clauses of NDA[2]

  1. Timeframe : It includes the period for which agreements are made to be maintained, the time till which the recipient of the information is expected to hold the secrecy of that information. This period includes the day when agreement comes into effect and  it expires after the completion of the contract.
  2. What Information ought to be protected: This part of agreement specifies which part of the information has to be kept  confidential from the general public and what part of the information is to be revealed to them.
  3. Duties and obligations of the parties: The responsibilities and obligations of the parties are clearly mentioned in this clause.
  4. Consequences of breach : The contract must specify  What would be the consequence of breach of confidentiality Heavy financial penalties may not work but getting an indemnity for all losses suffered due to a breach is usually sufficient.
  5. Right to seek an injunction in an NDA: It is often specified in such contracts that monetary compensation alone cannot compensate losses arising out of the breach thus this clause provides the right to the party who suffered breach to approach a court and seek injunction orders against the breaching party.
  6. Dispute Resolution clause in an NDA: It is important to resolve all disputes arising out of the agreement quickly and cheaply so that cost of enforcing the contract remains low. This could be ensure through the outside court settlements through alternative dispute resolution mechanisms . In this clause at the time of entering into an agreement the parties have to mutually opt for a mechanism in order to settle their dispute and will also decide who will be their arbitrating officer . The Arbitrator shall pass ex parte order which would be enforceable on both the parties.

Benefits of entering into an NDA

As discussed above, NDA is an agreement between two or more parties where they agree to disclose confidential information among themselves but excludes all others from the right of accessing that information, except in some circumstances.

  1. It helps to explain specifically what the confidential matter is and helps in maintaining their secrecy.
  2. Non-Disclosure Agreement deals with the provisions that take care of penalties to be imposed on the contracting party who discloses the information that was alleged to be kept confidential. The one who breaches the provisions of  NDA are prescribed punishments in the form of compensation. 
  3. Non-Disclosure Agreement helps in achieving the aim of their commitments by acting in due diligence in safeguarding such information.
  4. NDA helps the parties to accommodate or to adapt their obligations well. It helps them to know once the obligations don’t apply and once they would terminate.

Conclusion (Problems of NDA)

  • Bad drafting will result in confusions: The main downside of NDA is that the problem is to determine what has been in accordance with the provisions of  the contract and what is not . This typically happens because of a lack of fine drafting within the contract.
  • It will result in lengthy litigation: It is a big issue in India as getting into a contract is simple but its enforcement is difficult. This is why getting into a contract with a good arbitration clause  that ensures low value of contract is important.
  • Wrongly written NDA will cause you issues later: If there are clauses the meaning of that isn’t clear then it can create a trouble  NDAs are powerful tools, however should be wielded carefully.

Related Questions

  1. Meaning of Non Disclosure Agreement?
  2.  Types of Non Disclosure Agreement?
  3. Functions of Non Disclosure Agreement?
  4.  When to sign a Non Disclosure Agreement?
  5. Benefits of Non Disclosure Agreement?
  6. Important clauses of Non Disclosure Agreement?

[1] https://legaltemplates.net/form/non-disclosure-agreement/

[2] https://legaldocs.co.in/non-disclosure-agreement

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