Introduction to Non-Disclosure Agreements

Non-Disclosure Agreements are commonplace in today’s society. For some entrepreneurs, signing an NDA is a common practice with the parties they engage with. We use them to help protect products we manufacture from China.

What is a Non-Disclosure Agreement?It is a contract through which the parties agree not to disclose information covered by the agreement. An NDA creates a confidential relationship between the parties, typically to protect any type of confidential and proprietary information or trade secrets.Full Definition >

Some examples of when NDAs are used are by companies looking to hire an employee, by lawyers as part of settlement agreements, or by chemical companies formulating compounds. NDAs in the business world are generally used to share confidential information safely by regulating who can share information and the means it is transmitted. It is very important to read through and understand any NDAs you are looking at signing.

NDAs are not contracts that bind companies to do business with each other. They outline the guidelines and rules of how information should be exchanged and protected.

Non-Disclosure Agreements are also known as:

  • Confidential Disclosure Agreement (CDA)
  • Confidential Agreement (CA)
  • Secrecy Agreement
  • Proprietary Information Agreement (PIA)

What should be in the NDAs you sign?

Purpose of the NDA

The purpose of the NDA should be stated. An NDA for hiring managers given to potential hires will look different than an NDA signed between someone looking to have a product manufactured.

A good NDA will state that the purpose of the NDA is for “parties that wish to explore a business relationship” or “parties that wish to exchange confidential information”. A better NDA will be even more specific, for example “The parties involved are considering a cooperative relationship to improve the website of party A with the software services of party B”.

This expands on the backgrounds of the parties and gives details on the kind of information to be exchanged.

  • Parties Involved: The NDA should list which parties are involved in the contract. This can be between two people, but if there are companies involved, they should be included as well.
  • Information transmitted: The contract should layout what type of information that is to be protected. Information that is common knowledge or in the public domain can’t be categorized as confidential.
  • Duration of the contract: Most NDAs are only written to last for a period of 3 to 5 years, but they can go longer or shorter, depending on the needs of the parties involved.
  • Non-Compete Clause: This dictates a time period for which employees aren’t allowed to compete with the organization. Sometimes this extends for a period after which an employee has left the company.
  • Reciprocity: Some NDAs are one sided, meaning that they only protect one party’s data or interests. In most cases, it is better to have NDAs that protect both party’s information and files. This is more conducive to building long term relationships.
  • Non-Solicitation Clause: This is a clause which prevents employees of either company from selling secrets or files to other companies.
  • Notice: This directs the process to be followed in the event of a breach of the contract. Normally this will specify which court in which district or state will handle the legal disputes.

Identifying What Information is Confidential

Not every piece of information shared between two parties is confidential, especially if it is in the public domain. There should be some way to easily identify what information you are sharing is confidential.

Some NDAs state that all information shared between the parties should be treated as confidential, but that isn’t really practical. You can mark files shared as confidential, and that would suffice, or you can include something that would allow recognition in the NDA like “if the confidential information would have been readily apparent to a casual viewer”.

Third Party Coverage

NDAs by default cover two parties. In some situations, it will be necessary to involve other companies in the contract. These companies can be added to the NDA at later points in the process, and they should be made aware of the clauses of the NDA. The recipient of information is usually responsible for the actions of the third parties involved.

Patentability

Information available to the public can’t be patented. Leaked information in most cases can no longer be patented as well. There should be special clauses that dictate the violating party compensate the loss of any patents through breaking the NDA.

There are some patent jurisdictions such as those in Europe that all for a patent to be filed within 6 months after a violation, provided it is made evident that there was a violation.

If you are in one of these jurisdictions, you should add in the NDA that the recipient shall provide a statement that there was a violation, if one should occur.

Exclusions to Confidential Information

Over the course of time some information may naturally lose its confidential status if it became available to the public domain. A thorough NDA will state that the obligation to keep such data confidential would cease if such a situation happened. The onus would be on the recipient to prove that the information is public domain and they weren’t the cause of it.

Disclosure of Information by the Government

In the case of special circumstances, such as a warrant or subpoena being issued, a recipient may have to give confidential information to the issuing government agency. A clause can be added so that the disclosing party should be informed (if permitted) so they can take legal action like filing for a preliminary injunction to try and block the disclosure. Regardless if it’s included or not, a warrant supersedes an NDA.

Ask for Non-Disclosure Agreements for Your Protection

NDA’s are an effective way to protect information and assets between companies. You shouldn’t be afraid to ask for an NDA to be signed. You won’t offend or scare away any legitimate companies by doing so. Using non-disclosure agreements to protect your company and your products being manufactured protects your future. When working with a China sourcing agent to help produce your product be sure to thoroughly read and understand any NDA’s you sign.

Legal Disclaimer: The information provided on this website does not, and is not intended to, constitute legal advice; instead, all information, content, and materials available on this site are for general informational purposes only.