Things you should know before signing NDA (Non-Disclosure Agreement)?

NDA, Non-Disclosure Agreement

Background:

A Non-Disclosure Agreement (NDA), also known as a Confidentiality Agreement, is an agreement that is executed between two or more parties with the intention to protect the commercial interests of the parties involved. Each agreement includes certain confidential information that may be very crucial for the parties. This crucial information may include cost and pricing, projected capital investments, inventory, marketing strategies, customer lists, or any kind of trade secrets. The parties signing the NDA pledge not to further disclose confidential information to anyone.

 

Types of Non-Disclosure Agreement:

When two or more parties enter into a business relationship, it is common for them to exchange certain information with each other, which is confidential in nature. Naturally, the parties want to prevent this confidential information from becoming public, and this is why they sign an NDA.

 

There are 3 different types of Non-Disclosure Agreements, which depend on the number of parties sharing their confidential information. The three types of NDAs are given below:

  1. Unilateral NDA:    In this kind of agreement, only one party discloses confidential information to the other(s) party.
  2. Bilateral NDA: In this kind of agreement, both parties disclose certain confidential information to each other and both parties are prohibited from further disclosing any information to any third party.
  3. Multilateral NDA:   In this kind of agreement, all the parties involved in the agreement disclose confidential information to each other, and such information is prohibited from further disclosure to any other party.

 

Detailed Review of Confidential Information:

While there is no certain law or a fixed definition, which defines, what information can be considered, but the following pieces of information are generally classified as confidential information as per the Indian courts. This information may include:

  • Trade Secrets
  • Client lists
  • Industrial drawings
  • Intellectual Property
  • Prototype products
  • Proprietary documents
  • Information received from third-parties

Exclusions from Confidentiality:

While an NDA is a water-tight agreement and does not allow for any exceptions related to the disclosure of confidential information protected through the agreement. However, there are certain conditions where a person may be allowed to disclose confidential information. These conditions are:

  •  Where the disclosure is required under law or by a statutory authority;
  • Where the information has been disseminated into the public domain; or
  • Where such disclosure is permitted by the owner of the confidential information.

The term of the agreement:

The terms of the NDA are mentioned in the agreement itself. Post the expiry of that term, a person may disclose the information. During the duration of that term, an employee even after resigning or termination is bound by the clause of the NDA. This has been upheld by the Hon’ble Delhi High Court and the Hon’ble Bombay High court.

What happens when you breach a Non-Disclosure Agreement?

A Non-Disclosure Agreement not only prohibits the parties from disclosing the confidential information but also provides for a legal remedy, in case the agreement is breached by any of the parties. When someone breached a non-disclosure agreement, he/she can face alegal suit and may be required to pay financial damages and related costs to the aggrieved party.

Is NDA fair to both parties?

Most agreements are drafted in such a manner, that they tend to favour one party more than the other. The same holds true in the case of Non-Disclosure Agreements as well. But, if you want an NDA to be successful, then it needs to be ensured that the NDA is fair for both parties. To accomplish this, a good idea would be to utilize mutual NDAs because they are beneficial for all the parties involved. A mutual NDA is when both parties intend to share confidential information, and the agreement protects the interests of both parties.

Tenure of Non-Disclosure Agreement

As with all legal matters, there is no specific or fixed tenure of the Non-Disclosure Agreement. The duration of the agreement, whatever it is will actually be guided by the agreement itself. Most agreements mention the specific time frame for which the agreement is in force. In addition to this, tenure depends on the relation between the parties, their preferences, and some other factors.

In addition to the tenure of the agreement, most NDAs also contain an NDA Protection Period. The term ‘agreement tenure’ refers to the period the two parties maintain the disclosure of confidential information. Even after the tenure is over, the parties may protect themselves with an NDA protection clause. During this period, the parties are still under obligation to protect the confidential information received during the NDA contract tenure.

Final Words:

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