A Guide to: Non-Disclosure Agreements

At Primas Law, our commercial lawyers are experts in handling a range of commercial contracts to help protect your business.

In our “A Guide to” series we take a look at some of these agreements and how they can be used in the business world.

Here, we look at Non-disclosure agreements (NDAs), which act as a key tool for businesses that need to share confidential information with third parties, whether they be potential partners, customers or advisors.

The easiest way to keep something confidential is not to share it in the first place, but innovation often requires collaboration, and we have many clients who want to know the best way to engage with third parties whilst maintaining confidentiality.

An example of our work: 

We recently worked with a manufacturer who had an idea about how they could improve one of the steps in their production line.

Although they had the industry knowledge and practical experience of the process, they needed support in developing the tooling to implement the change. This meant they had to speak to several university research teams and third-party businesses to find the right partners.

As part of this, the client had to share several key pieces of information about their products, processes, and business plans. Before entering into a formal collaboration agreement, our client wanted the assurance that anything shared would be treated with utmost confidence, and in such circumstances, an NDA was our starting point.

What is a non-disclosure agreement? 

Also known as a confidentiality agreement, an NDA is a legal contract.

It sets out how information is to be shared, the confidential nature of the information and the obligations of the parties when handling that information.

Typically, an NDA limits the purpose for which the information is used, how the information is stored and for how long a party is obliged to keep the information secret.

Having these obligations set out in a legal contract ensures there is clarity around the confidential treatment of certain information, providing a simpler route to enforcement than having to establish the existence of a common law duty of confidentiality.

When should you sign an NDA? 

You should get an NDA in place as soon as possible and certainly before you start sharing information with a third party.

Good commercial relationships often end up with a written contract that along with the commercial deal terms also contain confidentiality provisions. However, it’s important to note that contract negotiations can take some time to agree on and are usually concluded long after the first pieces of confidential information have been shared between the parties.

Non-disclosure agreements should be relatively quick and easy to agree on in advance without drawn-out negotiations and should therefore always be dealt with at the earliest opportunity.

Don’t assume that your conversations are automatically confidential, even when dealing with professional advisors. While some advisors have professional obligations to maintain confidentiality, that isn’t the case in all instances and you should always check in advance.

What is covered in an NDA?

Typically an NDA will set out categories of information that the parties will regard as confidential.

Whilst it is generally understood that documents marked “CONFIDENTIAL” form part of the confidentiality provisions, the parties may also want to ensure that the wider information exchange is covered under the NDA.  Therefore the inclusion of information shared in meetings, presentations and discussions between employees is often included.  Often, the very fact that the parties are in discussion in the first place can form part of the confidential information.

Equally, the NDA will also confirm what information isn’t included, such as information already known to a party; information already in the public domain; or information acquired from independent sources.

The purpose of the information exchange is also usually spelt out so that it is clear to the parties why the information is being shared and what therefore the parties can do with it.

Being clear on the “why?” certain information is shared, can also help you limit “what” is shared so that you or your teams are only providing what is necessary to meet the purpose.

Who the information can be shared with is another important consideration.  Does everyone in the third party company need to know your information, or does the third party need to share the information with advisors outside of their company?  If the information does need to be shared, then including onward obligations on maintaining confidentiality is critical.

Finally, timescales for maintaining confidentiality and what to do when discussions end are also set out in the legal agreement.

Not every secret needs to be taken to the grave, and some information may become public information at a future point in time, so thought should be given to how long the parties intend to be bound by the obligations of the NDA.

Types of NDAs

Very simply, there are only two types of NDA and it all depends on who is sharing confidential information with whom.

1. If the information flow is only one way, then a unilateral or one-way NDA is required.
2. Where both parties to the agreement are sharing confidential information, you will need a mutual NDA, where the terms of the agreement apply equally to both parties.

How to enforce an NDA

Whilst damages claims are available to an innocent party following a breach of an NDA, they rarely provide adequate compensation to a party who was attempting to keep certain information confidential, and despite best intentions, no agreement can ever provide an absolute agreement that the disclosed information can be protected.

However, if a party is aware that the other side is about to misuse or disclose the information disclosed under an NDA, the discloser will often seek an injunction from the courts preventing such misuse or disclosure.

As injunctions are typically granted at the discretion of the courts, NDAs often make express reference to injunctions as an appropriate means of enforcement.  Although not a guarantee that an injunction will be granted, the express reference to injunction can assist the court in concluding that the parties recognised that injunctions offer an equitable and appropriate remedy and therefore increase the chances of an injunction being awarded.

Three things costing you time with your NDA 

Our commercial contracts team are experienced in dotting the i’s and crossing the t’s when it comes to protecting businesses through Non-Disclosure Agreements.

But having the wrong NDA, or an overly one-sided document could still lead to time being wasted on what should be a simple document to sign.

Here are three things costing you time when signing an NDA:

1.  Unclear purpose: Setting out the purpose of the information sharing and understanding the context means that the parties to the agreement are clear on their respective obligations.

   Not only that, but it makes determining what information needs to be shared, who the information can be shared with, and how long the confidentiality provisions need to remain much easier to determine and justify.

2.   Overly restrictive clauses: While we understand you will want to protect your proprietary information and ensure it is treated with due care, it’s important to be realistic about who will need access to this information.

   You wouldn’t be sharing the information in the first place if you didn’t require the recipient’s help or assistance to progress your own business needs. On occasions where time is of the essence, a reasonable contract will always be quicker to agree than a heavily one-sided one.

3.   Timing is everything: consider the length of your agreement. Our experience is that the number one change in NDAs is the duration of confidentiality obligations.

   Again, be realistic about the timings of the project or issue that you’re protecting and ensure the NDA covers this period. While some obligations can continue indefinitely, certain confidential information has a shelf life, and therefore courts are unlikely to uphold undertakings that relate to information that has lost its confidential character or that ceases to hold any commercial value.

Non-Disclosure Agreement FAQs

Can an NDA be broken?

Like any contract, its existence doesn’t provide protection from a party intent on breaking their obligations.  However, having a contract in provides certainty to the parties and makes enforcement easier.

What happens if you break an NDA?

If you break an NDA you open yourself up to a potential damages claim from the harmed party, as well as the negative cost consequences of an injunction.

Are NDAs legally binding?

Yes, Non-Disclosure Agreements are legally binding contracts.

How long does an NDA last?

An NDA will typically set out how long the confidentiality provisions will last.  This could be anything from one to five years.  In some circumstances, and depending on the information shared, the parties may wish the provisions to last indefinitely.  Where the character of the information is no longer confidential (for example it could already be in the public domain) the provisions of the NDA will fall away.