Quick tips for Non Disclosure and Confidentiality Agreements
Non-Disclosure Agreements (NDA) (also commonly known as Confidentiality Agreements) are used in a variety of business relationships. Some circumstances where the parties may wish to enter into an NDA are as follows:
- Employment relationship: a prospective employee, independent contractor or consultant to a business may be asked to sign an NDA as a condition of being hired.
- Joint ventures: two companies considering doing business with each other will want to protect any confidential information that they share with each other during their business relationship, especially in the event that the relationship breaks down or ceases.
- Supply, distribution or franchise relationship: a business that relies on third party vendors, suppliers, distributors, sub-contractors or franchisees who will have access to trade secrets or other types of confidential information often requires the other party to enter into an NDA.
Here are some key things to think about when you are negotiating an NDA:
What’s protected and what isn’t?
A critical question to ask when negotiating an NDA is what is defined as ‘confidential information’? There isn’t a ‘one size fits all’ answer. Rather, the parties should ensure that the definition of confidential information in any particular circumstance accurately describes all the types of information that may be regarded as confidential. This also includes giving consideration to the manner in which such information may be communicated by one party to another. For instance, is it necessary for information to be labelled ‘confidential’ to be regarded as confidential information? What about information that is communicated verbally? It is equally important that the parties give adequate consideration to the definition of information that might be excluded from being regarded as ‘confidential information’ as well as the various circumstances in which use or disclosure of the confidential information is permitted. In order to avoid any doubt arising from each of these matters, the parties should ensure that they are clearly explained in the NDA.
Who is bound by the NDA?
Often parties fail to consider who they intend that the NDA will be binding upon and whether or not the NDA can be enforced against certain persons. Generally the contracting parties may also be obliged to ensure that there is no misuse or disclosure of confidential information by employees, agents, subsidiaries, sub-contractors and the like. Whilst it is unlikely that an NDA can be enforced against someone who is not a direct party to the NDA, including such a clause in the NDA acts as an important reminder to recipients of confidential information that they are responsible for the actions of parties to whom they disclose information.
How long does it last?
It is recommended that an NDA does not contain a timeframe to limit the period that parties are required to be bound by the confidentiality and non disclosure obligations. It is preferred that the non disclosure and confidentiality obligations should continue to survive for as long as the confidential information remains confidential in nature. Generally speaking this would mean that the obligation to maintain confidentiality should continue until that information comes into the public domain.
What happens if there is a breach?
Ordinarily an NDA will set out the rights of a party in the event of a breach of the NDA by the other party. This may include a right to compensation by way of damages or perhaps court-ordered intervention. However, what many people fail to consider before entering into the NDA is the practical difficulties that may arise when it comes to enforcing their rights against the party in breach. It is essential to consider the jurisdiction that will govern the interpretation of the NDA and where a dispute will be resolved in the event of a breach. Also, it is important to consider the identity of the contracting parties. For instance, how you will go about enforcing your rights against a party in breach if it is a foreign entity with no local assets. Whilst it is not impossible to commence legal proceedings in another jurisdiction or to sue a foreign entity, this can be extremely difficult and costly so it is important to be aware of possible enforceability issues at the outset.
If you need an NDA or if someone has asked you to enter into one please contact our experienced commercial lawyer:
Rachel Mauceri, Lawyer
Phone: +61 2 9895 9236