Why is it important to sign an NDA to protect the information of your Company? 

In our current society and competitive market, the companies need to be as innovative as possible and to make a difference in the market in order to succeed and to leave a lasting mark on the market. The acquisition of new information is fundamental for each company in order to create and/or improve goods and services and as such the company´s prototypes, products, customers and patents are the most crucial asset of the business. This is why this information must be secured in order to keep it safe from an uncontrolled disclosure that could damage the business. Information is the most fundamental asses of the companies these days, in this post, we will see the importance of a Non-Disclosure Agreement for business, the fundamental parts and what must be considered before creating one.

So, this is the thing: When you own a business, there always develops the potential to generate new knowledge and to add more value to the company precisely because of new findings, products, way to proceed in a competitive business, etc. Revealing such knowledge without taking into your hand the measures to protect it could cause significant economic losses as well as business opportunities. Besides, no one wants their secrets to be revealed, especially not the ones that make your company unique.

A Non-Disclosure Agreement (NDA) is a confidentiality contract that establishes the obligation to maintain in secret certain information that the parts could share among themselves but that is not supposed to be of public circulation. With the NDA the owner of the confidential information establishes legal protection by which he will be entitled to ask for compensation for damages and losses that could be caused by the disclosure of information without the required authorization. Considering this, the NDA has a dissuasive effect on the part that could pretend to deliberately disclose the secrets of the company.

It becomes a rather convenient contract to be signed if there are persons in the company that could have sensitive information about areas of the company that, if they are disclosed to the public, could affect the business integrity.

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The factors to be considered in the establishment of an NDA

A number of factors must be considered in the elaboration or revision of an NDA and are basically as follows:

  • The NDA must be signed by workers or contractors that have access to sensitive information, especially when they are involved in the process of creation, product development of services that the company wants to keep confidential in order to maintain a competitive advantage in the market.
  • It must be signed when two companies are considering establishing a commercial relationship and share sensitive information to evaluate the potential of such alliance.
  • The NDA must be signed with customers that have access to sensitive information about the company or about the services they provide.

Of course, this all depends on the particular needs of each case and the quality of the information that could be disclosed and that could damage the company’s best interests, but in any case, these situations must be considered before sharing information.

How to define the nature of the confidential information?

The nature of the confidential information must be clearly defined in order to establish the limits of the NDA. Ambiguous definitions don´t offer an effective protection because there could be different interpretations that could generate problems between the parts. This considered, the companies must define and determine in detail the information that would be protected by the NDA such as financial reports, marketing strategies, product prototypes, etc.

At the same time, there must be a definition of what will not be considered protected by the NDA, for example, public information, information legally obtained from alternate sources, information that is developed independently or any case in which the signing part could have legal access to the company´s information.

Finally, the involved parts must agree on the circumstances in which they could reveal such confidential information such as a court order or any kind of order that comes from the competent authority. In such cases, the NDA should establish the obligation of notifying the owner of the information.

General aspects of an NDA

An NDA demonstrates the obligation of the recipient part of keeping the confidentiality of the disclosed information, because as general knowledge says: a secret know by many is no longer a secret (of course, this is just a general overview of what an NDA usually requires but for more information, you should refer to the very comprehensive guide to writing a non-disclosure agreement that you can find on doctemplates.net).

The Discloser part is the one which transmits the information considered as confidential

The Recipient part is the one who receives the information and assumes the confidentiality

On the other hand, the NDA can be

Symmetrical: When it establishes the same obligations for the signing parts without minding if they are disclosers or recipients

Asymmetrical: When it established particular obligations for each one of the parts.

Now, an NDA doesn´t necessarily have to be a complicated and obscure document but you do need fundamental aspects and clauses to ensure its efficacy as a way to protect the company. The most fundamental parts are:

Background: Why are we going to sign an NDA? Is it to evaluate a new technology or to begin a collaborative project? The purpose of the NDA states the in which cases the confidential information can be used.

For example, X and Y intend to enter into a discussion for the purpose of evaluating a possible business collaboration between the companies. Considering this situation, it is anticipated that X and Y may disclose confidential information…

Definitions: 

As stated before, it´s fundamental to define without any ambiguity the information that will be protected by the NDA as well as an effective definition of what is being understood as confidential information in that particular case.

In a general manner, it´s accepted that the confidential information is the one that is not supposed to be disclosed to the general public, identified as such by the disclosing by the disclosing company.

Obligations and exceptions: 

What are the obligations implied by an NDA?

In each confidentiality agreement, there are obligations, but there are also cases in which the information can be disclosed and even some cases in which the signing parts are not compelled to apply the confidentiality agreement.

Obligations. 

In a general manner, the obligation of an NDA id to keep the information as confidential and to treat it with the same degree of confidentiality as we do with our own information.

Authorization. 

There are some permitted disclosures in very specific cases that must be clear in the NDA, such as disclosing the information to professional advisers following the original purpose of the NDA and only with the condition of Non-Disclosure agreed by this part as well. That means that if the professional adviser discloses the information to the general public, the signing part will be held responsible for a contract breach and will assume the consequences agreed on the NDA.

Time of validity of the NDA

How long will the information be secured under a NDA?

In order to determine the validity of the NDA contract in time, two aspects must be distinguished:

1. The validity of the contract and the difference with the duration of the contract

2. The validity of the contract makes reference to the time the information will be shared under the conditions established by the NDA. Depending on the purpose of the contract the general times established as the validity of the NDA are as follows:

  • Between 3 and 6 months: If the disclosure of information is part of the preparation of collaborative projects or to evaluate business possibilities
  • Between 6 months and 1 year if the NDA has the purpose of evaluating technologies or industrial property, assets or to evaluate an investment opportunity
  • More than 1 year when we want to establish a stable communication channel to exchange information for example in cases of collaboration agreements that will take a long time.

On the other hand, the duration of the contract refers to the time the information must be kept confidential, a period that is usually established for several years. Depending on the nature of the information the time could be from 3 to 7 years.

So, all these considered, if you own a company and are about to disclose confidential information to employees, business partners and possible commercial partners you must think about the need of an NDA to keep this information as confidential as it is. Imagine if you have a brand new and original business strategy that will change the market and you reveal it to the incorrect person without having a signed NDA. That would be a huge mistake. Remember that the NDA is fundamental for the integrity of the business, please make sure to seek legal help to make it as clear as possible for all the parts involved and to avoid being ambiguous in the definitions, scope, and consequences of this contract. Remember that your information is your most important asset and protect it as such.

By Anna Kupelian

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