Nevin Clinton,Flywork.io Team, Flywork.io.
A non-disclosure agreement (hereinafter referred to as NDA) is an agreement where the parties agree to not disclose content or the information in the agreement. Such agreements can be entered into between two companies, individuals, an individual and a company, and so on. NDAs are customary around the world when information is required to be kept confidential. In India as well, the agreement is quite common. It is governed by the Indian Contract Act, 1872 here and such an agreement becomes valid and enforceable when stamped.
Why is a non-disclosure agreement signed?
An NDA is signed in order to protect trade secrets while entering into business deals. This becomes extremely important especially in the case of protecting intellectual property rights and more so for modern-day startups. Let’s assume that a company has to hire an adviser from outside the company to help give inputs for a novel product. In such a case, the adviser can be asked to sign an NDA so that he does not disclose information about the product to the company’s competitors or anybody else.
An NDA could be unilateral, bilateral, or multilateral
An NDA can be both unilateral where just one party agrees not to disclose sensitive information and bilateral where both parties agree to maintain secrecy. There can also be multilateral NDAs that are signed by three or more parties. These help in doing away with the need for multiple agreements. Also, it does not have to be only business deals where an NDA can be signed as it can be signed even between an employee and employer of a company or a non-disclosure clause can be inserted in just about any contract.
Essentials of a non-disclosure agreement
- Must be an agreement: First and foremost, an NDA must have all the essentials of an agreement. For this, broadly, there must be an offer, acceptance, creation of a legal relationship, and consideration.
- Protected information: With regard to the non-disclosure part of the agreement, it must have the information that is protected. The parts of the agreement to be kept confidential also have to be mentioned. This can be done so by marking certain documents as ‘confidential. Along with the same, a time period must also be mentioned up to which the agreement must be maintained.
- Imposition of duties: Certain duties can be imposed with regard to the information in the agreement. For example, mentioning how to convey sensitive information and whom to. Consequently, failing to adhere to the said duties must result in punishments and the same must be mentioned as well. Certain exceptions can also be given where sharing the information would not attract consequences.
- Dispute resolution: Referencing as to how to settle disputes arising out of the agreement can be provided, though it isn’t of too much importance. Here, a ‘jurisdiction clause’ that mentions the court to have jurisdiction in case of a dispute can also be inserted. There can also be clauses mentioning that disputes must be settled through arbitration only and so on. It is worth noting that such jurisdiction clauses are not ‘essentials’ as such as an NDA can do without them as well, but including them can make things easier if a dispute arises in the future.
Importance of a well-drafted non-disclosure agreement
Firstly, a non-disclosure agreement is important as it helps maintain the confidentiality of information that could be misused. Further, such agreements help in building trust and confidence among the parties thereby further benefiting the business. This is because they help in knowing obligations and adapting to them. If confidentiality is kept, there is bound to be an increase in trust.
Due to the importance of NDAs, it is important that they are well-drafted. If such an agreement lacks sharpness, it could result in a lack of clarity leading to the confidentiality being broken or causing a confusing situation. If that happens, it could result in lengthy litigation to resolve the issues. This is exactly why legal personnel should be the ones to draft a Non-Disclosure Agreement. It is an absolute must for the parties concerned to read and understand each and every term in the agreement. If there are terms that are difficult to understand, they must be clarified as this might lead to a number of issues or disputes in the future.