NDA 101: Everything You Need to Know About Non-Disclosure Agreements

An NDA, or non-disclosure agreement, is a crucial tool that companies use to protect their valuable assets. Commonly known as a confidentiality agreement, it helps safeguard commercial secrets during transactions or collaborations.

In this post, we will explain what an NDA is and why it is important. We will also distinguish between non-disclosure agreements and confidentiality agreements. Additionally we will explore mutual non-disclosure and confidentiality agreements (MNDA agreements).
Furthermore, we will discuss the key elements of a well-drafted NDA and provide guidance on when to use each type. Understanding these basics of non-disclosure agreements will help you safeguard your company’s assets.

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What is a NDA?

An NDA (Non-Disclosure Agreement) is a legal contract that establishes confidentiality obligations between parties. It also protects sensitive information from unauthorised disclosure. It’s crucial for safeguarding a company’s valuable assets and commercial secrets during various business interactions.

The NDA, often used alternately with the term “confidentiality agreement,” serves to maintain secrecy around vital information. It includes trade secrets, business strategies, and proprietary data. In essence, it ensures that the receiving party handles the shared information responsibly. It also ensures they don’t reveal to third parties or use it for unauthorised purposes. 

NDAs can be one-sided, involving one disclosing party, or mutual, where both parties share sensitive information. By understanding the difference between non-disclosure agreement and confidentiality agreement, as well as the concept of MNDA agreements, businesses can effectively protect their valuable assets in an increasingly competitive world.

Why is a NDA Important?

Non-Disclosure Agreements (NDAs) play a crucial role in safeguarding businesses and their assets in various situations. Here are some reasons why NDAs are vital for both individuals and organisations:

Protection of Intellectual Property

NDAs help protect valuable intellectual property, including trade secrets, inventions, and business strategies, ensuring they aren’t leaked or misused by competitors.

Facilitating Trust in Collaborations

In partnerships, mergers, or joint ventures, MNDA agreements promote trust between parties. They do this by preserving confidentiality of shared information.

Attracting Investors 

NDAs enable businesses to confidently share sensitive information with potential investors, showcasing their capabilities without risking the exposure of proprietary data.

Legal Recourse

Strong NDAs offer a legal enforcement structure. They enable businesses to pursue remedies like injunctions or damages in case of breach.

Boosting Employee Loyalty

NDAs can emphasise the importance of protecting company information, promoting a culture of loyalty and confidentiality among employees. For example, a biotech company in Hong Kong might require its research partners to sign NDAs to protect its confidential drug development information.

Similarly, a software company in Auckland, New Zealand might use NDAs to prevent its employees from disclosing its proprietary algorithms or software code to competitors. NDAs can help businesses establish trust with their partners and employees while protecting their valuable assets from unauthorised disclosure or misuse.

2 Real Examples of NDA

Waymo vs. Uber

In 2017, Waymo, Google’s self-driving car division, accused Uber of stealing trade secrets related to autonomous vehicle technology. Waymo claimed that a former Google engineer who joined Uber had taken confidential information, including thousands of files, with him. 

An NDA between Waymo and the engineer might have averted the problem. However, a poorly drafted NDA or its violation resulted in a lawsuit. The case was settled in 2018 when Uber agreed to pay Waymo a significant equity sum. They also ensured Waymo’s confidential data wouldn’t be used in Uber’s technology.

Microsoft vs. Google

In 2005, Microsoft sued Google after Kai-Fu Lee, a former Microsoft executive, joined Google to lead its China operations. Microsoft argued that Lee had violated his non-compete agreement and would inevitably use Microsoft’s confidential information in his new role. This case emphasises the need for well-defined NDAs and non-compete agreements, clarifying confidentiality scope and employee mobility restrictions. The case was settled out of court, with Lee agreeing to certain limitations on his work at Google.

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5 Tips and Reminders for Non-Disclosure Agreements

1. Be clear about the parties involved 

Identify the disclosing and receiving parties. Ensure to also identify as well as any relevant advisors or related parties that may need access to the confidential information.

2. Define the purpose of disclosure 

State the allowed purpose for disclosing confidential information. This ensures the recipient only uses the data for that particular reason.

3. Carefully craft the definition of confidential information 

Aim for a definition that encompasses all pertinent details. Avoid excessive breadth that may cause uncertainty in identifying confidential information.

4. Implement safekeeping and security measures 

Define the recipient’s security measures for protecting confidential data, like password protection. Include access logs as part of the precautions.

5. Set an appropriate term and exit strategy 

Determine a reasonable duration for the confidentiality obligations. Ensure to outline how the confidential information should be returned or destroyed upon the agreement’s termination or completion. Embrace social listening to monitor mentions of relevant keywords and stay informed about potential breaches.

Unfortunately, companies frequently neglect the significance of non-disclosure agreements (NDAs), leaving them exposed in safeguarding their assets. Though NDAs offer many advantages, numerous firms neglect to create comprehensive, well-structured agreements.

This lack of attention to detail often leads to legal disputes. While NDAs can be useful in certain situations, they can also be a hindrance to collaborative efforts. NDAs can also scare off potential partners or investors who may feel restricted by the agreement. Overall, companies must weigh risks and benefits cautiously when adopting NDAs.

If you would like to stay up to date on the latest NDA law, and other legal developments, get your free demo of Practical Law.

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