What Is Non-Disclosure Agreement?
A Non-Disclosure Agreement is a contract to protect information considered to be confidential or proprietary and disclosed in an employment relationship or in business transactions. It is sometimes called “Confidentiality Agreement” or “NDA.”
Why Is A Non-Disclosure Agreement Necessary?
- To Protect Trade Secrets. A Non-Disclosure Agreement is used to protect trade secrets. A trade secret is any type of information that is not generally known by the public and from which actual or potential economic value can be derived. The owner of a trade secret must use reasonable efforts to maintain secrecy. By using Non-Disclosure Agreement, a trade secret owner can maintain the trade secret status, while preventing the recipient of the information from further disclosing the information to a third party and retaining control over use of that information. In many circumstances, a NDA can be specifically enforced judicially through injunctive relief.
- To Create A Business Relationship. A Non-Disclosure Agreement is also used in common business transactions where any confidential or proprietary information is shared. For example, when companies expand their business or create a strategic alliance such as a joint venture, development agreement or outsource business processes, the strategic partner receiving the confidential information needs limits on use and further disclosure of the confidential information. A Non-Disclosure Agreement allows the disclosing party to share its proprietary and confidential information with others without unduly jeopardizing the information.
Non-Disclosure Agreement Considerations
- Definition of Confidential Information. The definition of “Confidential Information” plays a very important part of a Non-Disclosure Agreement because it determines the scope of information disclosed and protected under the NDA. The definition of confidential information needs to be specifically defined such as the forms of confidential information (e.g., tangible or intangible). In most cases, the agreement includes the provision where orally disclosed information is protected if the disclosing party confirms the confidential nature of the disclosure in writing within a certain period of time. Indeed, the form of confidential information is irrelevant to its status as a trade secret. The Washington Supreme Court held that a memorized customer list did not lose its trade secret protected status merely because a former employee did not take the list in a tangible form.
- Non-Disclosure Agreement Types. A Non-Disclosure Agreement is often categorized as either mutual or one-way, but it is also used among multiple companies such as for the purpose of a strategic alliance.
- No Use or Disclosure of Confidential Information. Typically the disclosing party seeks to limit the recipient from disclosure to any third party or restrict use of the confidential information other than the purpose described in the NDA. Indeed, a typical requirement is that the confidential information is allowed to be provided to the disclosing party’s employees on a need to know basis. Generally, where confidential information is sought by a governmental body or requested by subpoena or other court order, the recipient must resist such request, notify the disclosing party and cooperate with the disclosing party in challenging the request.
- Limits on Confidential Information. A Non-Disclosure Agreement generally puts some limits on the type of information such as information already in public domain, possessed by the recipient before being disclosed by the discloser or independently developed within the recipient’s organization. Another purpose to limit confidential information is to make sure that the Non-Disclosure Agreement is not extended too much and to comply with the Uniform Trade Secret Act.
- Term of Non-Disclosure Agreement. A Non-Disclosure Agreement is usually meant for a specific purpose and should be documented for each purpose. Generally, the protection of confidential information remains even after the relationship of the parties ceases, so long as the confidential information remains a secret.