A non-disclosure agreement or NDA is a specific legal contract or a clause within a written contract that prohibits one or more parties from divulging or sharing information obtained from a disclosing party. The information could include personal data and other private information, trade secrets and proprietary knowledge, and some aspects of intellectual property.
Other terms for an NDA include confidentiality agreement, confidential disclosure agreement, proprietary information agreement, and secrecy agreement. It os one of the three major restrictive covenants alongside non-compete agreement and non-solicitation agreement.
A non-disclosure provision is usually contained in service contracts and employment contracts. Examples of standalone NDAs include written doctor-patient and bank-client confidentiality documents, as well as implied contracts such as attorney-client privilege and journalist source protection.
Writing a Non-Disclosure Agreement: Types and Contents of NDAs
Types of NDAs According to the Source of Information
The first step in writing a non-disclosure agreement involves determining and defining the rights and responsibilities of involves parties to identify the appropriate type of NDA for the particular scenario. It is critical to identify the source of information or the disclosing party, and its recipient or the receiving party. Take note that there are three types of non-disclosure agreements: unilateral NDA, bilateral NDA, and multilateral NDA. Below are the details:
• Unilateral NDA: A unilateral NDA involves two parties in which one party is the only source of information, and the other participant is prohibited from disclosing such. Note that the source of information is called the disclosing party.
• Bilateral NDA: In a bilateral NDA, there are two parties involved, and both are sources of information. Both are also disclosing parties. Sometimes referred to as a mutual NDA or two-way NDA, this agreement anticipates that the involved parties would be disclosing confidential information to one another.
• Multilateral NDA: A multilateral NDA involves three or more parties. The source of information that needs protection may only come from a single disclosing party or multiple disclosing parties.
Of course, remember that an NDA is a contract. For it to become legally binding, it should contain the following fundamental elements of an enforceable contract: offer and acceptance, mutual agreement or meeting of the minds, considerations or exchange of promises, competent parties, legality of purpose, and proper form.
Writing and Organizing the Fundamental Contents of NDAs
Some NDAs are shorter and less complex. Furthermore, remember that most contracts also include specific non-disclosure provisions. There are instances in which a detailed NDA is essential to provide parties with detailed rights and responsibilities through the inclusion of several critical provisions or clauses. The following are the fundamental contents or components of non-disclosure agreements:
1. Identification of the Involved Parties
Like other written contracts, the document should contain the names of the involved parties and a statement declaring that they are entering a non-disclosure agreement. It is essential to identify the disclosing party and the receiving party. The names should be complete and legal, regardless if the involved parties are natural persons or artificial entities such as registered business organizations. This part of NDA is usually placed in the introductory portion of the document.
2. Definition of Confidential Information:
It is also essential to define what is confidential, the information to be held confidential, or the scope of what is considered confidential information. Most NDAs feature an exhaustive list of covered information. Examples include personal data, financial information, trade secrets and proprietary information, unpublished patent applications, research and development process, schema, lists and details of vendors and clients or customers, and business strategies, among others.
3. Information about Date and Place
The date and place where the NDA was made are essential in its enforcement. Furthermore, these details are necessary for determining the applicability of relevant laws, as well as the chronological and territorial scope in which the agreement is both enforceable and legally binding.
4. Obligation of the Receiving Party
An important component of a non-disclosure agreement is the written details of the obligations of the receiving party. It limits in the use of information based on enumerated purposes, restricts the transmission of the information to identified recipients, mandates protocols needed to keep information secured, and requires observant of protocols when using mediums to contain, store, transmit, and share the confidential information. This part of the NDA essentially explains the duties of the receiving party.
5. Disclosure Period
Several jurisdictions mandate limiting the duration of non-disclosure. Some laws essentially provide an expiration date for the agreement. In addition, some negotiators would argue for the inclusion of a time limit depending on the nature of the information, especially if it deems that a long-term non-disclosure agreement would affect its prospects. A specific statement could also indicate that information not disclosed during the disclosure period would not be considered confidential.
6. Exclusion or Restrictions on Disclosure
A specific clause on restrictions on disclosure or inapplicability of non-disclosure could provide the receiving party with additional rights apart from the definitive definition of what is confidential. Usually, the inapplicability of non-disclosure takes effect if the recipient had prior knowledge, it received the information from another source, the information is generally available to the public, or a court has issued a subpoena requiring the receiving party to disclose the confidential information.
7. Severability Clause
Severability is another crucial component of a non-disclosure agreement. It is essentially a statement that declares enforceability of the entire NDA even if there is an invalid or legally unacceptable clause or component of the agreement. Take note that without this clause, a single invalid clause could void the entire NDA.
8. Notice of Immunity
Remember that court orders on confidential information would render the NDA ineffective because laws supersede contracts. However, it is still important to reiterate a statement or notice of immunity that frees a receiving party from civil or criminal liability for disclosing confidential information due to a court order.
9. Other Special Clauses or Provisions
Depending on the circumstances, the NDA might also include other components or clauses used in other written contracts. These include arbitration clause, choice of law, choice of jurisdiction, statute limitations, and integration or merger clause, among others. Some NDAs also complement non-compete clause or restrictive covenants.