Non- Disclosure Agreements
If you’ve done any work for bigger organisations you may be familiar with Non-Disclosure Agreements, or NDAs as we commonly know them. Contrary to many opinions, NDAs are not only initiated by big organisations. As a business you can, and you should initiate an NDA with a client who you will be sharing your confidential information with. When you are sharing your technology or other proprietary information with a potential strategic or commercial client, you will want to ensure that the information is kept secret and not being used for an unauthorized purpose. This is where a non-disclosure agreement (NDA) is relevant. For example, if you are a baker and will be sharing your secret recipe with one of your clients, you’ll definitely want to enter an NDA.
Here’s all you need to know about NDAs.
A non-disclosure agreement (NDA), also known as a confidentiality agreement (CA), confidential disclosure agreement (CDA), proprietary information agreement (PIA) or secrecy agreement (SA), is a legal contract between at least two parties that outlines confidential material, knowledge, or information that the parties wish to share with one another for certain purposes, but wish to restrict access to
An NDA is a legally binding document that sets out the obligations of the person receiving confidential, non-public information to the person disclosing it. An NDA may be one-way (in other words, it only obligates the receiving party to protect the confidential information of the disclosing party) or it may be mutual (it obligates each party to protect the other party’s confidential information). NDAs are meant to provide assurance that a defined universe of information that is shared between parties will be confidential and not used for any purpose other than the purposes permitted in the NDA.
The mutual NDA is when both parties are restricted in their use of the materials provided, or they can restrict the use of material by a single party. A single sided NDA is when only one party is restricted in the use of the information shared with them.
In this agreement you and your client/customer agree not to disclose information covered by the agreement. The NDA creates a confidential relationship between you and the other party, typically to protect any type of confidential and/or proprietary information or trade secrets. The NDA protects non-public business information. This is important to remember. You cannot publicise information and expect to have it protected by an NDA and so it is important that you also ensure that you keep your own confidential information confidential.
If you are considering doing business and need to understand the processes used in your and or the other party’s business for the purpose of evaluating the potential business relationship you may enter into an NDA before even starting business with you client or customer. This should be one of the first agreements you enter into with your clients even before sharing ideas.
It is important to limit the receiving party’s disclosure of your confidential information to only those who are necessary with a “need to know” and that are themselves obligated to maintain the confidentiality of your information. As a freelancer, you cannot afford to lose your competitive advantage by having your confidential information shared publicly or exploited by another business and so it is essential that you ensure that you have an NDA in place.
Once you’ve entered an NDA, you may share sensitive information without fear that it will end up in the hands of your competitors and if it does, you will have a right to recourse.
Here are some of the key concepts you want to ensure are included in your NDA:
Identification of the parties
There should be a clear and straightforward description of who the parties who will be disclosing information.
Definition of what is deemed to be confidential
It is important that the agreement states whether it will be all information relating to the businesses that will be confidential or whether only the information that is marked confidential will be considered confidential. As the party disclosing confidential information, review the definition closely to make sure it really covers everything you need to keep confidential. If you anticipate disclosing potentially patentable inventions, make sure they are covered by the NDA. Any disclosure you make that is not covered by an NDA could prejudice your rights in any patent application.
The purpose of sharing the confidential information
Stating the purpose of signing the NDA will provide a direction to the relationship you wish to have with your client and will ensure that the receiving party does not use your information in ways that may be detrimental. Any use beyond the stated purpose should require the disclosing party’s consent.
The exclusions from confidential treatment
This is intended to address situations where it would be unfair or too burdensome for the other side to keep the information confidential should be included, such as information that is already public or when compelled by law to disclose the information. For example, it is not practical to expect your client to keep your information confidential when you have posted it publicly on social media.
Duration of NDA
Your NDA may state that this obligation survives in perpetuity (that is, with no fixed termination date), but the mark-up you receive caps the period to the term of the agreement, or to several years after disclosure of the information. Before you insist on perpetual secrecy, think about whether what the information you are sharing will become publicly available in the future. For example, if you are sharing the fact that you have an exclusive supply agreement, the terms of which are confidential, but you intend to reveal this partnership on your website within a few months after your fundraising round, there would be no reason to negotiate hard for a perpetual term. On the other hand, if you are disclosing information that you believe to be trade secrets, such as that precious recipe, you may need to insist on a perpetual secrecy term since trade secret protection extends for as long as the information remains a trade secret. Remember that the “term” of an NDA can refer to either the duration of the confidentiality obligations or the duration of your information-sharing relationship with the counterparty. Ensure that these two different timelines are separate and keep them in mind when you are negotiating your NDA.
This clause allows the receiving party to use, without restriction, some “residual” information that is received during the course of the relationship between the parties, usually covering information that a party’s personnel recollects from its “unaided memory.” This clause allows your client to use any ‘left over’ information of yours in the future. A “residuals” clause can raise concerns for the disclosing party, since it potentially allows the receiving party to use confidential information for any purpose without violating the NDA. If there is a residuals clause, and you are a disclosing party, consider including a provision making clear that the NDA does not grant the other party a license to your intellectual property rights. You need to watch out for these clauses in the NDAs if your client initiates an NDA. It is usually advisable to refuse a residuals clause in your NDA unless it benefits you.
An undertaking by parties that they will not use the confidential information they know for their own benefit, by means that include but are not limited to, poaching clients and suppliers. Your client will naturally get to know more about you and who you work with. It is important that you ensure that your clients do not use the information they know against you. It is advisable to have a breach penalty for clients who breach the terms of the NDA and use your confidential information against you.
As a freelancer, your position in business may sometimes be weaker than that of other businesses that are bigger and more established and thus is it important that your confidential information is protected to avoid putting yourself at a competitive disadvantage.
NDAs are not limited a specific freelancer, any freelancer who is sharing confidential information with their clients should consider entering one. If you find yourself in situation where the information you have to share with your client is confidential and the disclosure of that information would cripple you and your business, then you should consider entering a One-Sided NDA. If your client will also be sharing confidential information, then a Mutual NDA is advisable. However, if you feel like it is not necessary for you enter an NDA with your clients, your information will be still be protected because most agreements still include a confidentiality clause for your protection.
Not sure how to draft an NDA? Not to worry, at Hello Contract we’ve made it easier for you. You can create your own customised NDA within minutes here.