Loose Lips Sink Ships - Importance of NDAs

by Carl Spencer-Spear, September 2019

Page Book

Information and ideas can be the cornerstone to the success of a business. Discussing ideas is sometimes risky and, in certain circumstances, loose lips sink ships. However, remaining tight lipped can hamper development and growth.

Confidentiality agreements (also known as non-disclosure agreements or NDAs for short) are one of the most simple and common types of contract businesses typically enter into but play an important role, as they allow businesses to share sensitive information whilst alleviating the risks involved with such disclosure.

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. They typically include obligations to keep information secure, only share it with approved employees and third parties, and delete/return the information once the purpose for sharing it has come to an end.

Unfortunately, NDAs are not the “be-all-and-end-all” in the protection of confidential information. If the other party breaches confidentiality, you’ll need quite a bit of time and money to enforce the agreement against them, and once information is out, you can’t turn back time to make it secret again.

Nevertheless, NDAs play an important role in setting out the party’s relationship and they’re great at focusing the mind. When used in the right situation, NDAs can bring another person’s attention to the fact that what you want to reveal is valuable information and that you want them to respect that.

When should I use an NDA?

NDAs are not an excuse to share information with anyone and everyone. You should only share confidential information and ideas if there is a genuine business reason for doing so, you trust the third party you’re dealing with, and the potential benefits outweigh the risks associated with the information being leaked or misused.

Equally, it is important to be tactful when considering whether to use an NDA. You need to 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, whilst 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. At the end of the day, most VC’s and investors, are not interested in your idea, only how you plan on executing it.  NDAs are far more important when dealing with customers or potential competitors, for example whilst considering a joint venture or new project, and should not come as a surprise to them.

As an alternative to an NDA (and even when you do have an NDA in place), you should consider anonymising key details in your documents. Redact the key parts and use footnotes to explain why you have done this. The less information you can disclose, whilst still being constructive and portraying what you need to portray, the better!

What should I look for/put in an NDA?

Top of the list is to check whether the NDA 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. If you’ve been given an NDA by a party you’re speaking to, don’t assume that it protects you as well; check it and take legal advice if necessary.

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. NDAs 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 NDAs to have a clause that deals with intellectual property which confirms that no IP rights are transferred via the NDA. Again, don’t assume that this is the case. We do see some NDAs that say any ideas or IP generated during the discussions, belong to the other party. This should be resisted!

Template NDAs and further help

If you’re looking for a straightforward NDA to use, you can find template NDAs (mutual and one-way) on our website, at https://www.roxburghmilkins.com/latest/downloads/.

If you need something more detailed, or are looking for advice on the best ways to protect your confidential information, please do not hesitate to get in touch with us on +44 (0) 117 928 1910 or email carl.spencer@roxburghmilkins.com

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