4 December 2023
Contents
4 December 2023
A Non-Disclosure Agreement (NDA) also called a confidentiality agreement is a document that is used to protect confidential information that is disclosed by individuals or businesses in pursuance of a business relationship. It creates an enforceable agreement between the parties that they will not disclose or use the confidential information for any purpose other than the purpose of the business relationship.
Violation or breach of a NDA can result in business losses, loss of trust, and possible legal actions. The document itself may provide for certain measures as well as penalties to address the violation.
This guide will explain the examples of confidential information as well as the possible outcomes or consequences arising from the breach or violation of any of the provisions in the NDA.
A Non-Disclosure Agreement (NDA) or confidentiality agreement generally involves two parties, the disclosing party and the receiving party. While the name suggests their actual role in the agreement and the implied obligation where one who receives must protect what was received, there may be certain obligations or rules that must be complied with by both parties under the agreement.
The disclosing party is the one that possesses and has to share confidential information with another party pursuant to an agreement or as a consequence of a business relationship.
The disclosing party is person who owns the specified confidential information and shares it to another called the receiving party. Sharing of confidential information is generally in pursuance of the business relationship between the disclosing party and the receiving party and will be protected pursuant to the NDA.
The disclosing party is responsible for clearly identifying and specifying the confidential information that is being shared and should not be disclosed by the receiving party. This party makes use of a confidentiality agreement to have more certainty that the receiving party will not disclose or use the information for unauthorized purposes.
The receiving party is the one that receives confidential information from the disclosing party.
The receiving party agrees to receive and handle the confidential information with care and only for the purposes outlined in the agreement, and the receiving party commits not to disclose or use the information for any unauthorized purposes. This obligation extends to the employees or agents acting under the name of the receiving party which is why it is important that the receiving party adequately takes measures to ensure that the persons who hold confidential information on their behalf is aware of the confidentiality agreement between the receiving party and the disclosing party.
The agreement may be stipulated in such a manner that both of them may be a disclosing party and receiving party reciprocally to each other, meaning, there is a two-way disclosure, as opposed to one-way disclosure where only one party is the receiving party and the other party is the disclosing party. This is usually the common practice.
Depending on the type of business or industry the parties to a confidentiality agreement are in, the information can be considered confidential. Being able to distinguish what is confidential or otherwise will enable the parties to protect their own rights and interests in a given business relationship. What is confidential information may be defined and laid down clearly in the confidentiality agreement.
Examples of confidential information are documents, techniques, methods, practices, tools, specifications, inventions, patents, trademarks, copyrights, and other intellectual properties, equipment, algorithms, models, samples, software, drawings, sketches, plans, programs; and fields of research and development, forecasting, marketing, personnel, customers, suppliers, contractors and subcontractors, and finance.
Further, confidential information may refer to trade secret information which refers to any formula, pattern, design, device, or compilation of information that is used in the disclosing party's business and gives the disclosing party an advantage or an opportunity to gain advantage over its competitors who do not possess said information. Trade secret information also includes processes or devices intended for continuous use in the operation of the disclosing party's business.
Notwithstanding the foregoing, in case of doubt, whether any information is confidential, the same shall be treated as confidential.
There are certain kinds of information that are no longer considered as confidential such as those already known or available to the public at the time of disclosure or became available after disclosure through no fault of the receiving party, examples of these are those already known through existing news and other government information. This can also be already known, through legal means, by the receiving party such as if the information pertains to a legal action or cases filed in court which the receiving party is also a party of and this knowledge came into the receiving party and had the right to disclose it before obtaining information from the disclosing party that is classified as confidential.
Further, if the confidential information is developed independently by the receiving party and the receiving party can show such independent development, this is no longer confidential information. An example of this is if the receiving party has made a market analysis before receving a confidential information and the figures shown in the market analysis are the same as that of the confidential information shared by the disclosing party.
It must be noted that once the confidential information becomes publicly known without any fault on the part of the receiving party, the confidentiality agreement cannot be breached anymore as the information is no longer considered as confidential because it is already known by the public.
Certain legal consequences may arise due to a breach of a confidentiality agreement or NDA. This generally starts with a cease and desist letter which the injured party (which is usually the disclosing party) can send to the breaching party (which is usually the receiving party). This letter demands the breaching party to stop performing further acts that are considered as a breach. After sending said letter, and if the breaching party does not comply or respond to the same, a case may then be filed in court for causes including but not limited to the following:
Breaking a confidentiality agreement is fundamentally a breach of contract. The injured party can take legal action which may involve seeking remedies such as damages in the form of a sum of money or asking the breaching party to perform a particular act (also called "specific performance" which is a court order requiring the breaching party to do a specific act to address or undo the breach).
A confidentiality agreement can also include a penalty clause in which it is specified that the breaching party may be liable for a specified amount of money in case of breach.
Being an ordinary civil case, this involves the process of seeking the assistance of a legal counsel, informing the breaching party of such breach, and filing a complaint in a court of law. This may also be prefaced and accompanied by an injunction which is a court order requiring the breaching party to stop disclosing or using the confidential information immediately. Failure to comply with an injunction can result in further legal consequences such as other criminal actions stated in the succeeding paragraphs.
A failure on the part of a party to a confidentiality agreement to follow the terms and conditions of the said agreement can give rise to a breach of contract. Thus, for example, if in the confidentiality agreement, Party A discloses certain financial information of Party B, which is considered as a breach under the agreement, Party A can be liable for breach of contract, and be held liable for monetary damages.
The Intellectual Property Code of the Philippines covers various forms of intellectual property, including trade secrets. If the confidential information constitutes a trade secret or proprietary information, the injured party may pursue legal action under intellectual property laws.
The disclosure of a trade secret or proprietary information is considered as unfair competition and may give rise to a penalty of imprisonment and fine against the breaching party.
For example, if ABC Restaurant possesses a secret ingredient for their fried chicken which is a trade secret, and Party A, who has access to this information and signed a confidentiality agreement concerning the trade secret, discloses the same, Party A can be punished for unfair competition under the intellectual property law.
If the breach involves fraudulent activities, the Revised Penal Code of the Philippines includes provisions on estafa, a crime related to fraud and misrepresentation. This could be applicable if the breach of the confidentiality agreement is accompanied by deceptive actions that result in financial loss.
Using the same example, if Party A receives money or compensation in exchange for obtaining knowledge over the confidential information, knowing that he will sell such information to XYZ Restaurant which is ABC Restaurant's competitor. Party A is liable for estafa or fraud and may be punished with a penalty of fine and imprisonment if he proceeds to sell such information to XYZ Restaurant.
The Data Privacy Act of 2012 governs the processing of personal information such as names, addresses, and phone numbers. If the breach involves unauthorized disclosure of personal data protected by this law, the injured party may take legal action, and the responsible party could face penalties under the Data Privacy Act.
For example, if Party A obtains confidential information concerning the personal information of the employees of ABC Restaurant such as their names, addresses and phone numbers and disseminates said information to other persons, Party A may be liable under the law and be punished with the penalty of fine and imprisonment.
The Cybercrime Prevention Act of 2012 addresses offenses related to computer systems, data, and online activities. If the breach involves unauthorized access to computer systems or data, the injured party may pursue legal action under the provisions of this law.
Using the same example, if Party A used a computer system in disseminating confidential information about ABC Restaurant, the crimes he committed may accordingly be punished under the Cybercrime laws by increasing the penalty imposed by the laws violated.
A breach of confidentiality can harm the trust and confidence in a business relationship. This can lead to a loss of reputation in the industry, making it difficult for the breaching party to secure future partnerships or collaborations. In some cases, details of legal disputes may become public, further damaging the reputation of the party in breach.
A party that has a history of breaching confidentiality agreements may find it challenging to enter into new agreements or partnerships. Other businesses may be hesitant to work with an entity that has demonstrated a lack of commitment to protecting sensitive information.