Non-Disclosure Agreement (NDA)

What is a non-disclosure agreement?

A non-disclosure agreement (NDA), also known as a confidentiality agreement, is a document used when two people or companies enter into a new business relationship and would like to protect confidential information. In the course of that relationship, the parties will likely reveal sensitive information, such as trade secrets, to each other. The NDA prevents the sharing of that sensitive information with outside third parties. This helps both parties feel more comfortable revealing this information and allowing each other necessary access so that commercial negotiations and collaboration can continue openly and honestly.

What is the difference between a non-compete agreement and a non-disclosure agreement?

Though both documents are used in business relationships, they constrain parties in different ways. A non-compete agreement prevents an employee from leaving their employer to start a competing business in the same industry and same geographic location. It is not about the disclosure of information but instead about the initiation of competition. A non-disclosure agreement stops someone from sharing specific business secrets and practices outside the business relationship.

Is it mandatory to have a non-disclosure agreement?

No, in most situations, it is not mandatory to use an NDA. Businesses are able to freely share information with each other without restrictions. NDAs are not necessary when the information being shared is already public or the parties are having a basic business interaction that does not include sharing sensitive information. However, in some specific circumstances, in particular industries such as healthcare, protecting certain information is legally required. Using an NDA can be part of that compliance.

What are "trade secrets"?

Trade secrets are information about any formula, process, or method that is not widely known by the public and a business uses for an economic advantage. For example, trade secrets could be particular recipes, manufacturing processes, or design details.

What must a non-disclosure agreement include?

A valid non-disclosure agreement must contain at least the following mandatory clauses:

• Identifying information: The NDA should include the name, address, and contact information for all the involved parties. The NDA also specifies whether one or both of the parties is having their information protected from disclosure.
• Purpose: The non-disclosure agreement outlines the specific purpose for its creation, whether that be employment, a new business partnership, the sale of a business, or some other reason. This section also describes whether trade secrets that are being protected.
• Term: The NDA specifies the length of time during which the parties are bound by the agreement and must refrain from disclosure. This may be a fixed period of time or indefinite.
  
  

What can the duration of a non-disclosure agreement be?

An NDA can be for a fixed period of time or for an indefinite length of time. However, the duration of the agreement should be reasonable for the circumstances and industry in which it is being used if it is to be legally enforceable in court. Different states also have varying standards for how long an NDA may last.

What should be done once the non-disclosure agreement is written?

Once this document has been completed and reviewed, it should be printed out and signed by both parties. The parties should each save a copy of the NDA in their files for future reference and in case of dispute or disagreement.

Which laws are applicable to non-disclosure agreements?

Non-disclosure agreements are subject to the laws of individual states. There is no one federal law covering non-disclosure agreements. In some states, non-disclosure agreements will be interpreted under laws applying specifically to these types of documents. In other states, non-disclosure agreements will be interpreted according to the general rules of contract law.

There is, however, the Uniform Trade Secrets Act, which is a model act that has been adopted by the majority of the U.S. States and the District of Columbia.

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