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  • Writer's pictureAccounString Management Private Limited

What Is A Non Disclosure Agreement?

In all relationships, including business, trust and confidence in the other party go a long way. A Non Disclosure Agreement is often the foundation of establishing such relationships. Business secrets can go a long way in ensuring the success of a company. Take, for instance, Coca Cola’s ingredients – one of the world’s best-kept secrets. The company sources it from different suppliers, involves multiple employees in the process, to ensure no two people have access to the entire recipe.

In this post, we bring to you essentials of a non-disclosure agreement. We also highlight its purpose and define legal issues surrounding non-disclosure agreements.


What is a Non Disclosure Agreement?

A non-disclosure agreement put simply is a written promise that a party will not share certain information. This is often sensitive information acquired as a result of proximity to a business. Let us consider an example – Employees developing codes for a software company may become privy to crucial information about the development of software. They may also know where the company sources it’s electrical equipment from, who it’s key customers are and obtain their contact details. These employees may disclose such critical information to rival companies in the same industry for material gains. They may also leak information about new product launches to the press/internet, causing losses to the organisation. Some of the employees may later exit the organisation and use this information in setting up their own company.

However, in case of a non-disclosure agreement with employees, they may be restrained from sharing such information with outsiders.


Characteristics of a nondisclosure agreement

  • It is fully legally admissible in a court of law

  • Further, it may be a unilateral agreement signature by only one party such as employees

  • It may be a bilateral, multilateral agreement signed between both parties for example in a joint-venture

  • A nondisclosure agreement typically prevents valuable information from leaking out to competitors, customers, and the general public.




What information doesn’t amount to confidential information?

Any information that is publicly available is considered to be non-confidential. Thus, any information about the company that can be obtained from its charter documents, public interviews of key personnel, brochures, its website or any other public source does not fall within the purview of classified information.

On the other hand, business strategy, trade secrets, source codes, drawings, diagrams essential to the business may all be included in confidential information.


Who should you sign a non-disclosure agreement with?

A nondisclosure agreement can have a sign with either or all of the following stakeholders in the organisation

  1. Employees – A company’s employees are often the ones developing crucial products, accessing multiple data records and communicating with suppliers and customers. Therefore, it becomes important to discourage employees by way of signing an NDA. Most businesses require new recruits to sign a non-disclosure clause

  2. Investors – A company going in for funding, seeking private placement of shares or any other mode of external infusion of funds may choose to sign in India.

  3. Developers, suppliers and key equipment manufacturers – It is also advisable to sign an NDA to protect the company’s key designs, drawings, charts, plans or other components that play a role in making the company’s product successful. Access to this pivotal information can give an edge to competitors.

Clauses that your non-disclosure agreement should ideally consist of:

The NDA format should include the following five clauses –

Defining the scope of confidentiality

It is important to have a broad definition of confidentiality. The company should ideally include not just competitively sensitive information but also any other information that may consider being confidential while disclosing by the company.


Obligation to maintain confidentiality

This clause restrains the receiving party from disclosing the information by imposing certain obligations. They could include the following –

  • Maintaining all security processes

  • Protecting the integrity and confidentiality of information by disallowing any unauthorised access, use, disclosure, publication or dissemination

  • Promptly notifying the company if there is any unauthorised loss or disclosure of the confidential information

  • Maintaining secrecy about the discussions or negotiations concerning a confidential transaction

Remedies

In the remedies clause, one or more of the following remedies may be mentioned –

  • Monetary damages

  • Specific performance

  • Injunction

  • Other remedies available in law or equity

  • Fees and legal expenses

Form of serving notice

Since the disclosure of confidential information is a serious offence, any knowledge of such happening must be promptly shared. The format of serving a notice requires to send it under the agreement may have consideration. This could include email, overnight mail, or delivery to the registered address.


Term of the agreement

Even if the agreement has a signature for a certain number of years, it is important to ensure that the information confidentiality has maintenance. Thus, your NDA must say that even if the term ends, there must be no disclosure of the information obtained while the agreement was in operation.

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