Generally speaking, nondisclosure agreements are contracts in which a party (normally an employee) promises to protect the confidentiality of a secret that is disclosed to him or her during the course of their employment, or during another business transaction. If you have a nondisclosure agreement with someone who then later uses your secret information without your authorization, you can make a request to a court to stop the person from violating the nondisclosure agreement. In addition, you can often sue the offender for any damages you suffered as a result of the breach of confidentiality.
The use of nondisclosure agreements within employment contracts has grown in tandem with the growth of the high tech and information-based fields. Entrepreneurs and employers should be aware of how to properly use them.
Trade Secret Protection
Perhaps one of the biggest uses for nondisclosure agreements is in the protection of trade secrets. Unlike patents, which must be part of the public domain, trade secrets are, by definition, secret. In addition, trade secrets are only afforded protection if the owner takes measures to keep the secret and the secret gives the owner an advantage in the marketplace.
Creating Confidential Relationships
Perhaps the real purpose of nondisclosure agreements is to create confidential relationships between the party that holds the trade secret and the party to whom the trade secret is disclosed. Parties that contract into such relationships have a legal duty to keep the confidential information in confidence.
In addition to written nondisclosure agreements, confidential relationships can also be created by an oral agreement, or can be inferred by examining the conduct of the parties. However, it is not advisable to rely solely on such means to create a confidential relationship because they are notoriously difficult to prove.
There are generally two classifications that a nondisclosure agreement can fall into -- either "mutual" or "one-way." A mutual nondisclosure agreement is one where two parties to the agreement both disclose confidential information to each other. For example, a mutual NDA could be found when an inventor discloses his invention to a company in exchange for the company disclosing their secret client lists to the inventor.
What are more common in employment settings are one-way NDAs. These are found when an employer requires a nondisclosure agreement from the employee in exchange for providing employment.
What Goes Into a Nondisclosure Agreement
When you go to work for a company that requires you to sign an NDA, or you are a company looking to hire employees under a nondisclosure agreement, you will generally see at least five basic elements in the nondisclosure agreement. These are:
What is 'Confidential Information?'
If you are already looking at a nondisclosure agreement, the agreement should pretty clearly spell out what is considered confidential information. The purpose of defining this term within the NDA is to establish the boundaries of the agreement (the subject matter) and disclosure, but without actually disclosing the confidential information (keep in mind that the agreement itself is not always confidential). When you have finished drafting your NDA, be sure to look back over it and ensure that all of your trade secrets are covered by your definition of "confidential information."
Exclusions from Confidential Information
Almost every nondisclosure agreement will also contain exclusions from the definition of confidential information. This means that the party receiving the excluded information has no duty to protect the confidentiality of the excluded information. Most exclusions are created by law. Perhaps the most important exclusion is that information cannot be protected by an NDA if the information was created or discovered by the receiving party prior to, or independent of, any involvement with the disclosing party.
Obligations and Duties of the Receiving Party
Generally speaking, a nondisclosure agreement should also state the obligations and duties of the party receiving the confidential information. These duties include holding and maintaining the confidentiality of the information, and can also limit the receiving party's power to use the information.
Many NDAs set a time period during which the receiving party must maintain the secrecy of the information. This time period can be set by dictating a number of years or it can be set by a future event.
Get Legal Help with Your Nondisclosure Agreement
Nondisclosure agreements are a great way to help protect your company's valuable trade secrets and intellectual property. Make sure your NDA is legally enforceable by contacting an experienced business attorney to help you draft your agreement and keep your confidential information private.