Information and ideas can be the cornerstone to the success of a business. Discussing ideas is sometimes risky, in certain circumstances, loose lips sink ships. However, remaining tight lipped can hamper development and growth. Confidentiality Agreements can sometimes be used to alleviate the risks involved with disclosing important business information.
In this blog we’ll be looking at Confidentiality Agreements (also known as Non-Disclosure Agreements or NDA’s), including what they are, what they should say and when it is appropriate to use them.
What is an NDA?
An NDA is an agreement confirming a promise by one party to another (a one-way NDA), or a mutual promise (a mutual NDA) to keep a secret. Unfortunately, you’ll need quite a bit of time and money to enforce that promise if it’s broken, and once they’re out, you can’t turn back time to make them secret again. So NDA’s are not the “be-all and end-all”. What they’re great at is focusing the mind. When used in the right situation, NDA’s can bring another person’s attention to the fact that what you want to reveal is important to you and that you want them to respect that.
When should I use an NDA?
Know who you’re dealing with, who they’re representing and think about what you’re protecting. This is important as some people will see an NDA as a barrier, others will view it as standard practice. For example, if you’re going to see a Venture Capitalist, you might not get a great response if the first thing you do is thrust an NDA in front of them. Most VC’s review new ventures on a daily basis; they don’t like to waste any of their time reviewing NDA’s, let alone keep track of their obligations under one. Many commentators on this subject use the analogy “you probably won’t get very many dates if the first thing out of your mouth is “Will you sign a prenuptial?””. At the end of the day, most VC’s and investors, are not interested in your idea, only how you plan on executing it. As an alternative to an NDA, think about anonymising key details in your documents, Executive Summary or Business Plan. Redact the key parts and use footnotes to explain why you have done this. In some instances, automatic intellectual property rights likecopyright will already stop other people copying your work, for example, software code. As a result, an NDA might not be needed in every situation. Business to Business and Employer/Employee relationships are a different kettle of fish, the use of NDA’s are common place. Other parties might even be surprised if you don’t ask for an NDA to be signed before a meeting.
What should I look for/put in an NDA? The Legal Bit…
Top of the list is to check whether it should be mutual or one-way. Unless there’s a good reason for a one-way NDA, generally a mutual NDA is best. If you’re hoping to form a trusting relationship with another business, a mutual NDA will put both parties on a level playing field. In an Employer/Employee relationship, one-way confidentiality obligations are usually acceptable.
Always check that the right parties are contracting. For companies, make sure company numbers are used in addition to names and addresses as company numbers never change. If the other party is part of a group or partnership, make sure the NDA prevents their group companies or partners from using the confidential information.
It’s usually best to accurately define the confidential information covered by the agreement. Ideally there should be an easy method to identify what’s confidential and what’s not, for example, it’s marked as confidential.
The NDA should say what happens if the agreement is breached. This would usually be that the party in breach indemnifies the innocent party for any loss, costs, damages etc. they suffer as a result of the breach. NDA’s usually also include rights ensuring that any confidential information is returned to the disclosing party upon request or even deleted or destroyed.
It’s usually appropriate for NDA’s to have a clause that deals with intellectual property which confirms that no IP rights are transferred via the NDA.
We’re always looking at ways of making things easier. Our website provides access to a number of free resources, including an NDA, together with some more detailed guidance notes which you can download and use as a starting point for preparing your own NDA. However, it goes without saying, please get in touch if you think you might need some help!