Last Updated March 11, 2024
What is a Non-Disclosure Agreement?
A Non-Disclosure Agreement, commonly referred to as an NDA, is a contract that protects the sensitive and confidential information that one party provides to another.
By signing an NDA, the party who receives confidential information agrees to use the information only for permitted reasons and to keep it private from third parties.
This agreement protects the person who is disclosing confidential information (i.e. the disclosing party) from being at a competitive disadvantage or from damaging their reputation. If one party breaches the contract, the other party may take legal action.
Who are the parties in a Non-Disclosure Agreement?
There are two parties involved in an NDA:
- The disclosing party is the individual or organisation that provides the confidential information.
- The receiving party is the individual or organisation that receives the information and agrees to keep it confidential.
Depending on the type of agreement, a single party can be made up of multiple individuals or organisations. For example, there may be two individual inventors who act as the disclosing party in an agreement. LawDepot’s NDA template allows you to add as many individuals to a party as is necessary.
When should I use a Non-Disclosure Agreement?
People commonly use Non-Disclosure Agreements in situations such as:
- Job interviews where the candidate learns trade secrets
- During employment or services in which the employer discloses information to an employee or contractor
- Employment in computer services, such as software outsourcing, app development, website design, or other information technology (IT) positions
- At the end of employment, after an employee resigns
- Transactions in which the product owner shares proprietary information as part of a potential sale
- Due diligence associated with the proposed purchase of a business
- Invention pitches, in which the inventor discloses information to a potential investor
LawDepot’s Non-Disclosure Agreement template is built for a unilateral relationship where one party discloses information to another party. In a unilateral NDA, also known as a one-way NDA, only one party is under obligation to keep the information confidential.
For a mutual NDA (wherein both parties agree to share and keep confidential information), each party can use LawDepot’s NDA template to create a unique document for the other to sign.
Confidential information is information that is not common knowledge or known to the public at large. Ultimately, the disclosing party outlines what the confidential information includes. An NDA can protect a variety of information, such as:
- Customer information: this might include personal data such as names and contact information, purchasing and internet browsing history, GPS tracking information, and more
- Intellectual property: this can include any intangible asset that has commercial value, such as copyrights, patents, and trade secrets
- Marketing, product, and service information: this might include any strategic functions of a business such as marketing plans, production processes, prices, and more
- Business operations and accounting information: this can include intangible business assets such as information on vendors, staff, fixed costs, and other internal financial reports
- Proprietary computer technology: this might include data collection systems, internal applications, or software programs
Once you establish the subject matter of the confidential information, the disclosing party must describe how the receiving party is permitted to use it. For example, the disclosing party might say that the receiving party must keep the information confidential but can use it to inform business decisions or operations.
How long should a Non-Disclosure Agreement last?
An NDA can continue indefinitely or end on a predetermined date.
You can specify a date for the duty of non-disclosure (the responsibility of keeping the information confidential) to end. This date can be when the relationship between the two parties ends, or it can be when the information no longer needs to be confidential.
Also, the obligations created by an NDA can end if the confidential information becomes publicly known (through no fault of the receiving party).
For instance, imagine two inventors enter an NDA with a potential investor. The investor agrees to keep the details of the invention confidential until they can begin manufacturing and selling the new product. If one of the inventors were to give away the secrets of the invention during an interview with a journalist, the information would be considered public knowledge. In this case, the receiving party (the investor) wouldn’t be to blame and the NDA would be voidable.
What happens when someone breaks a Non-Disclosure Agreement?
NDAs often include remedies for a breach of contract, so if the receiving party breaks the terms there is a course of action to follow. As such, this contract acts as a strong deterrent because of the legal action that one party may take if the other violates the agreement.
For example, if the receiving party breaks the NDA, the terms may require them to pay liquidated damages (a predetermined sum of money). If damages are not an adequate remedy, the disclosing party might seek a court injunction that restricts the receiving party from committing or engaging in any act prohibited by the NDA.
Depending on the situation, the disclosing party could file lawsuits such as:
- Breach of contract: breaking the terms set out in the agreement
- Copyright infringement: using property without permission
- Misappropriation of trade secrets: wrongfully using or disclosing a trade secret
- Conversion: intentionally interfering with someone’s personal property
Do both parties sign the Non-Disclosure Agreement?
Yes, both parties should sign the agreement.
An NDA doesn’t need witnesses to be valid, but having a neutral third party witness your signatures helps reinforce the validity of the contract.