Non-disclosure agreements (NDAs) are contracts designed to let parties (companies or individuals) interact with each other without fear of compromising their confidential information.
NDAs can go by different names. They are sometimes also referred to as confidentiality agreements (CAs) and proprietary information agreements (PIA).
There are two types of NDAs, mutual and unilateral. Mutual NDAs bind both parties to protect each other’s confidential information, whereas unilateral NDAs are bind just one party to protect the confidential information disclosed by the other. In either case, the party sharing confidential information is typically referred to as the disclosing party, and the party receiving it is referred to as the receiving party.
Components of a Typical NDA
Some characteristic components of a typical NDA are:
- A description of the purpose of the disclosure of confidential information
- The definition of Confidential Information. Typically this involves a long list of things that are covered (e.g. “plans, financial information, operations, sales estimates, designs, formulas…”), although simpler agreements (which often are easier to get another party to sign) will generally to information that has commercial value to the disclosing party.
- Exclusions to the definition of confidential information. Typically this includes information that
- the recipient already knew at the time of disclosure
- is publicly available
- the recipient rightfully received from a third party
- the recipient develops independently
- Limitations on use. It is important that the receiving party not only not disclose the confidential information, but also that it only use that information for its intended purpose. An NDA will include language making this clear.
- What the receiving party must do to protect the confidential information. This part of the NDA will typically specify that the receiving party must use the no less care in protecting the disclosing party’s confidential information as it would with its own, and may also allow information to be disclosed to certain other people (such as employees and agents) on a need-to-know basis provided that they also sign an NDA.
- Compelled disclosure. An NDA will typically contain an exception to the confidentiality requirement for information that the receiving party is required to by law or court order to disclose.
- Term. The NDA will typically specify the duration of the obligation to protect confidential information (e.g., “The confidentiality obligations of this Agreement shall remain in effect for two years from the date of this Agreement”) as well as the window in which the agreement applies to information that is newly disclosed (e.g., “This Agreement applies to information disclosed within 1 year of the effective date”).
- Relationship of the Parties. Because NDAs are often signed between parties that in the exploratory phase of a business relationship, they will typically contain language making it clear that the NDA does not oblige the two parties to do business together, create a relationship between them, or convey any intellectual property rights.
If you want to see how these contract components fit together, please see Shake’s NDA template.
- The Duration Clause of Shake’s Non-Disclosure Agreement
- Signing an Agreement for Yourself Versus Signing for a Company
- The Confidentiality Provision of Shake’s Freelance Agreement Forms
- SBA.gov – Non-Disclosure Agreements
- Startup Company Lawyer: What is Important in an NDA
- Legal Information Institute: Trade Secret