NDA Agreement: Everything You Need To Know

Businesses working together often have to share sensitive information or data, which if revealed, can cause issues. The NDA or Non-Disclosure Agreement provides protection. It is needed when the two companies enter into a discussion about doing business together and wish to protect the details. The purpose of the agreement is twofold – protection and confidentiality. Information that the agreement protects may include everything, from product specifications, business models, to client details.

What is a NDA?

A Non-Disclosure Agreement, a confidentiality disclosure agreement, non-disclosure contract, or simply a confidentiality agreement, is a legal contract between two or more parties to protect confidential and sensitive information. The purpose of this legally binding contract is to restrict who may have access to such information and what can be done with it. Usually, two businesses enter into such an agreement. But in some instances, even the employees have to sign an NDA, in case they have access to such information.

The NDA creates a confidential relationship. NDAs are used when – 

• Sharing key information with freelancers, companies, or contractors
• Disclosing private data to vendors or investors
• A business collaborates with anyone with whom it works closely.

The agreement can either be mutual where both companies are restricted from sharing information, or it can be unilateral, where the confidentiality clause binds just one party.

Who needs an NDA? It can be required by any organization that wants to share and protect confidential information and maintain its secrecy. It is a legal document and so, often the agreement will be managed by the organization’s legal department.

What is an NDA in Business?

An NDA is an integral part of modern-day businesses where organizations often have to work together to develop and offer products/services and fulfill promises. It protects proprietary information, trade secrets, and key business information. It can become very risky if this protection is absent. On the other hand, a business can share key information and vital data without worry if the NDA is there to offer protection.

Businesses will want to sign an NDA before showing or telling an outside party its – 

• Inventions
• Ideas
• Designs
• Factory secrets
• Business processes or methods
• While making public the patent specification
• Financial information

Here are a few situations where a business may need this agreement.

1. Products – When a business is thinking of licensing or sale of a product or technology, it must make sure that all the data or proprietary material being disclosed, whether it is technical or financial, is safe to be shared with the third party.
2. Employees – They will have access to proprietary and confidential information. Thus, it must be ensured that the employees cannot share sensitive business information both when they are working and after leaving the employment.
3. Partners – A business must make sure of the confidentiality of information shared during negotiations held with an investor or partner.
4. New Clients – When getting a new client, your business may have access to sensitive company information. The NDA will identify information that cannot be shared, which will guarantee that there is no accidental exposure and legal liability.
5. Acquisitions, Mergers – Vital operational and financial information is also shared when a business is being sold. It is shared not just with the organization planning to buy, but also with brokers and intermediaries. The NDA will ensure protection.

Types of NDAs

The purpose of all NDAs is the same – to protect confidential business information. However, there are still different types of NDAs, each serving a different purpose.

• The Bilateral NDA – Also called a Mutual NDA or a Two-Way NDA, here both parties disclose confidential information. They can both limit how the other party will use and share this information. This type of agreement is entered into usually when the parties must share a lot of private business information like when entering into a joint venture, merger, or corporate takeover.
• The Unilateral NDA – In a Unilateral NDA, One-Way NDA, or Non-Mutual Agreement, only one party discloses confidential information. So, only one party is bound to confidentiality. This is the most common type of NDA. It applies to new employees with access to sensitive information. A business can also sign such an NDA with its partners, clients, advisors, freelancers, and other stakeholders.
• Multilateral NDA – These NDAs three or more parties sharing proprietary information. Here, one or more parties can disclose information, and the others pledge to protect it. Such an agreement eliminates the requirement of having separate bilateral or unilateral NDAs. For instance, there can be just a single multilateral NDA with A, B, and C instead of having three separate NDAs with the parties.

NDA in IT

Every business is unique. Thus, the requirement of an NDA and its scope will also be different. This is true for the IT sector, including software product development services. In IT and software development, the NDA must clearly define confidential information. For an IT job, confidential information is defined as “information related to project X, including the purpose of the job, the project architecture, knowledge, project structure, and also team composition”.

The NDA for IT companies should cover the following to protect information and for the safety of the company and everyone involved – 

• Software & code protection
• Client & project data
• Patents & trade secrets

How Long Does an NDA Last?

Do NDAs expire? Most agreements do not last forever. The NDA will mention the number of years for which it is valid. Even if an NDA is for an indefinite time, then too, it may often indicate when information is not going to be protected anymore by the agreement.

In most instances, the duration ranges between 1 and 5 years. It all depends on the specific circumstances and needs of the agreement. The duration can be influenced by factors like the industry, the nature of the protected information, and the relationship between the businesses.

What Happens If You Break A NDA?

An NDA is a civil contract and so breaking it is not a crime technically. It will not cause jail time. However, there can be a serious financial penalty. The harmed party may file a breach of contract lawsuit where the business may approach a court for financial compensation and associated legal costs.

• Legally binding aspects of an NDA – The NDA is a legally binding contract. Information the NDA protects should remain confidential. A violation can lead to lost profits and loss in value of a trade secret. Legal recourse is possible for a violated NDA.

Signing a Non-Disclosure Agreement is the best way to ensure the safety and confidentiality of critical business information. It protects business secrets, product details, business models, trade secrets, financial information, marketing strategies, and other sensitive information. Make sure that the NDA has details of the companies involved, the nature of the information to be protected, the scope of confidentiality, the obligations of the parties, and the consequence or penalty if there is a breach.