A Non-Disclosure Agreement (NDA), sometimes called a Confidentiality Agreement
, is a document that protects information, ideas, trade secrets, and more from being shared by imposing contractual obligations.
People often use these documents in business relationships that include discussions about confidential information (e.g., when an entrepreneur pitches an invention or product idea to a potential investor).
An NDA can’t physically prevent someone from sharing confidential information. However, a well-written NDA is a strong deterrent for anyone who signs one because of the consequences it outlines for leaking the info.
For instance, a clause in the NDA might say the wronged party is entitled to an injunction (court order) in the event of an information breach. In this case, the accused party would be prohibited from spreading the information until a hearing is set. Penalties for breach of a court order include fines, imprisonment, or both.
Another limitation is the difficulty of determining the monetary value of the damages caused by a leak. Some damages are beyond repair—no matter how much money is paid out.
Regardless, a written NDA can be more effective in protecting sensitive information than a verbal agreement. It provides evidence of the terms of the contract and clearly identifies available remedies if the contract is broken.