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A non-disclosure agreement (NDA) is a
legal contract
A contract is a legally enforceable agreement between two or more parties that creates, defines, and governs mutual rights and obligations between them. A contract typically involves the transfer of goods, services, money, or a promise to tran ...
or part of a 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.
Doctor–patient confidentiality (physician–patient privilege),
attorney–client privilege,
priest–penitent privilege
The clergy–penitent privilege, clergy privilege, confessional privilege, priest–penitent privilege, pastor–penitent privilege, clergyman–communicant privilege, or ecclesiastical privilege, is a rule of evidence that forbids judicial inqui ...
and
bank–client confidentiality agreements are examples of NDAs, which are often not enshrined in a written contract between the parties.
It is a contract through which the parties agree not to disclose any 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 secret
Trade secrets are a type of intellectual property that includes formulas, practices, processes, designs, instruments, patterns, or compilations of information that have inherent economic value because they are not generally known or readily asc ...
s. As such, an NDA protects non-public business information. Like all contracts, they cannot be enforced if the
contracted activities are illegal. NDAs are commonly signed when two companies, individuals, or other entities (such as partnerships, societies, etc.) are considering doing business and need to understand the processes used in each other's business for the purpose of evaluating the potential business relationship. NDAs can be "mutual", meaning both parties are restricted in their use of the materials provided, or they can restrict the use of material by a single party. An employee can be required to sign an NDA or NDA-like agreement with an employer, protecting trade secrets. In fact, some employment agreements include a clause restricting employees' use and dissemination of company-owned confidential information. In legal disputes resolved by
settlement
Settlement may refer to:
*Human settlement, a community where people live
*Settlement (structural), the distortion or disruption of parts of a building
*Closing (real estate), the final step in executing a real estate transaction
*Settlement (fina ...
, the parties often sign a confidentiality agreement relating to the terms of the settlement. Examples of this agreement are The Dolby Trademark Agreement with
Dolby Laboratories
Dolby Laboratories, Inc. (often shortened to Dolby Labs and known simply as Dolby) is an American company specializing in Noise reduction#In audio, audio noise reduction, Audio data compression, audio encoding/compression, spatial audio, and ...
, the Windows Insider Agreement, and the
Halo CFP (Community Feedback Program) with
Microsoft
Microsoft Corporation is an American multinational technology corporation producing computer software, consumer electronics, personal computers, and related services headquartered at the Microsoft Redmond campus located in Redmond, Washing ...
.
In some cases, employees who are dismissed following their complaints about unacceptable practices (
whistleblower
A whistleblower (also written as whistle-blower or whistle blower) is a person, often an employee, who reveals information about activity within a private or public organization that is deemed illegal, immoral, illicit, unsafe or fraudulent. Whi ...
s), or discrimination against and harassment of themselves, may be paid compensation subject to an NDA forbidding them from disclosing the events complained about. Such conditions in an NDA may not be enforceable in law, although they may intimidate the former employee into silence.
Terminology
It is also known as a confidentiality agreement (CA), confidential disclosure agreement (CDA), proprietary information agreement (PIA), secrecy agreement (SA), or non-disparagement agreement.
General types
A non-disclosure agreement (NDA) may be classified as unilateral, bilateral, or multilateral:
Unilateral
A unilateral NDA (sometimes referred to as a one-way NDA) involves two parties where only one party (i.e., the disclosing party) anticipates disclosing certain information to the other party (i.e., the receiving party) and requires that the information be protected from further disclosure for some reason (e.g., maintaining the secrecy necessary to satisfy patent laws or legal protection for trade secrets, limiting disclosure of information prior to issuing a press release for a major announcement, or simply ensuring that a receiving party does not use or disclose information without compensating the disclosing party).
Bilateral
A bilateral NDA (sometimes referred to as a mutual NDA or a two-way NDA) involves two parties where both parties anticipate disclosing information to one another that each intends to protect from further disclosure. This type of NDA is common for businesses considering some kind of joint venture or merger.
When presented with a unilateral NDA, some parties may insist upon a bilateral NDA, even though they anticipate that only one of the parties will disclose information under the NDA. This approach is intended to incentivize the drafter to make the provisions in the NDA more "fair and balanced" by introducing the possibility that a receiving party could later become a disclosing party or vice versa, which is not an entirely uncommon occurrence.
Multilateral
A multilateral NDA involves three or more parties where at least one of the parties anticipates disclosing information to the other parties and requires that the information be protected from further disclosure. This type of NDA eliminates the need for separate unilateral or bilateral NDAs between only two parties. E.g., a single multiparty NDA entered into by three parties who each intend to disclose information to the other two parties could be used in place of three separate bilateral NDAs between the first and second parties, second and third parties, and third and first parties.
A multilateral NDA can be advantageous because the parties involved review, execute, and implement just one agreement. However, this advantage can be offset by more complex negotiations that may be required for the parties involved to reach a unanimous consensus on a multilateral agreement.
Content
A non-disclosure agreement can protect any type of information that is not generally known. However, non-disclosure agreements may also contain clauses that will protect the person receiving the information so that if they lawfully obtained the information through other sources they would not be obligated to keep the information secret. In other words, the non-disclosure agreement typically only requires the receiving party to maintain information in confidence when that information has been directly supplied by the disclosing party. However, it is sometimes easier to get a receiving party to sign a simple agreement that is shorter, less complex and does not contain safety provisions protecting the receiver.
Some common issues addressed in an NDA include:
* outlining the parties to the agreement;
* the definition of what is confidential, i.e. the information to be held confidential. Modern NDAs will typically include a
laundry list of types of items which are covered, including unpublished
patent applications, know-how, schema,
financial
Finance is the study and discipline of money, currency and capital assets. It is related to, but not synonymous with economics, the study of production, distribution, and consumption of money, assets, goods and services (the discipline of fina ...
information, verbal representations, customer lists, vendor lists, business practices/strategies, etc.;
* the disclosure period – information not disclosed during the disclosure period (e.g., one year after the date of the NDA) is not deemed confidential;
* the exclusions from what must be kept confidential. Typically, the restrictions on the disclosure or use of the confidential data will be invalid if
** the recipient had prior knowledge of the materials;
** the recipient gained subsequent knowledge of the materials from another source;
** the materials are generally available to the public; or
** the materials are subject to a
subpoena – although many practitioners regard that fact as a category of permissible disclosure, not as a categorical exclusion from confidentiality (because court-ordered secrecy provisions may apply even in case of a subpoena). In any case, a subpoena would more likely than not override a contract of any sort;
* provisions restricting the transfer of data in violation of laws governing export control and
national security
National security, or national defence, is the security and defence of a sovereign state, including its citizens, economy, and institutions, which is regarded as a duty of government. Originally conceived as protection against military atta ...
;
* the term and conditions (in years) of the confidentiality, i.e. the time period of confidentiality;
* the term (in years) the agreement is binding;
* permission to obtain
ex-parte injunctive relief;
* description of the actions need to be done with the confidential materials upon agreement ending;
* the obligations of the recipient regarding the confidential information, typically including some version of obligations:
** to use the information only for enumerated purposes;
** to disclose it only to persons with a need to know the information for those purposes;
** to use appropriate efforts (not less than reasonable efforts) to keep the information secure. Reasonable efforts is often defined as a standard of care relating to confidential information that is no less rigorous than that which the recipient uses to keep its own similar information secure; and
** to ensure that anyone to whom the information is disclosed further abides by obligations restricting use, restricting disclosure, and ensuring security at least as protective as the agreement; and
* types of permissible disclosure – such as those required by
law or
court order
A court order is an official proclamation by a judge (or panel of judges) that defines the legal relationships between the parties to a hearing, a trial, an appeal or other court proceedings. Such ruling requires or authorizes the carrying out o ...
(many NDAs require the receiving party to give the disclosing party prompt notice of any efforts to obtain such disclosure, and possibly to cooperate with any attempt by the disclosing party to seek judicial protection for the relevant confidential information).
* the law and
jurisdiction
Jurisdiction (from Latin 'law' + 'declaration') is the legal term for the legal authority granted to a legal entity to enact justice. In federations like the United States, areas of jurisdiction apply to local, state, and federal levels.
Jur ...
governing the parties. The parties may choose exclusive jurisdiction of a court of a
country
A country is a distinct part of the world, such as a state, nation, or other political entity. It may be a sovereign state or make up one part of a larger state. For example, the country of Japan is an independent, sovereign state, while the ...
.
Australia
Deeds of confidentiality and fidelity (also referred to as deeds of confidentiality or confidentiality deeds) are commonly used in
Australia
Australia, officially the Commonwealth of Australia, is a Sovereign state, sovereign country comprising the mainland of the Australia (continent), Australian continent, the island of Tasmania, and numerous List of islands of Australia, sma ...
. These documents generally serve the same purpose as and contain provisions similar to non-disclosure agreements (NDAs) used elsewhere. However, these documents are legally treated as
deed
In common law, a deed is any legal instrument in writing which passes, affirms or confirms an interest, right, or property and that is signed, attested, delivered, and in some jurisdictions, sealed. It is commonly associated with transferring ...
s and are thus binding, unlike
contract
A contract is a legally enforceable agreement between two or more parties that creates, defines, and governs mutual rights and obligations between them. A contract typically involves the transfer of goods, services, money, or a promise to tran ...
s, without
consideration
Consideration is a concept of English common law and is a necessity for simple contracts but not for special contracts (contracts by deed). The concept has been adopted by other common law jurisdictions.
The court in ''Currie v Misa'' declared ...
.
India
Use of NDAs are on the rise in
India
India, officially the Republic of India (Hindi: ), is a country in South Asia. It is the seventh-largest country by area, the second-most populous country, and the most populous democracy in the world. Bounded by the Indian Ocean on the so ...
and is governed by the
Indian Contract Act 1872. Use of an NDA is crucial in many circumstances, such as to tie in employees who are developing patentable technology if the employer intends to apply for a patent. Non-disclosure agreements have become very important in light of India's burgeoning outsourcing industry. In India, an NDA must be stamped to be a valid enforceable document.
United Kingdom
In
Britain, in addition to use to protect trade secrets, NDAs are often used as a condition of a financial settlement in an attempt to silence whistleblowing employees from making public the misdeeds of their former employers. There is
law allowing protected disclosure despite an NDA, although employers sometimes intimidate the former employee into silence despite this.
[
]
United States
NDAs are very common in the United States, with more than one third of jobs in America containing an NDA. However, the United States Congress
The United States Congress is the legislature of the federal government of the United States. It is bicameral, composed of a lower body, the House of Representatives, and an upper body, the Senate. It meets in the U.S. Capitol in Washing ...
passed the Speak Out Act
The Speak Out Act (S.4524) is an Act of Congress which prevents the enforcement of non-disclosure agreements in instances of sexual assault and harassment. Introduced by senator Kirsten Gillibrand of New York during the second session of the 117t ...
in 2022, which prohibits NDAs with regard to sexual harassment
Sexual harassment is a type of harassment involving the use of explicit or implicit sexual overtones, including the unwelcome and inappropriate promises of rewards in exchange for sexual favors. Sexual harassment includes a range of actions fro ...
and assault
An assault is the act of committing physical harm or unwanted physical contact upon a person or, in some specific legal definitions, a threat or attempt to commit such an action. It is both a crime and a tort and, therefore, may result in crim ...
, and the legislation currently awaits President Joe Biden's signature.
In some states, most notably California
California is a U.S. state, state in the Western United States, located along the West Coast of the United States, Pacific Coast. With nearly 39.2million residents across a total area of approximately , it is the List of states and territori ...
, there are some special circumstances relating to non-disclosure agreements and non-compete clause
In contract law, a non-compete clause (often NCC), restrictive covenant, or covenant not to compete (CNC), is a clause under which one party (usually an employee) agrees not to enter into or start a similar profession or trade in competition agains ...
s. California's courts and legislature have signaled that they generally value an employee's mobility and entrepreneurship more highly than they do protectionist doctrine.
See also
* Arrow information paradox The Arrow information paradox (information paradox for short, or AIP), and occasionally referred to as Arrow's disclosure paradox, named after Kenneth Arrow, American economist and joint winner of the Nobel Memorial Prize in Economics with John Hick ...
* Attorney–client privilege
* Bank–client confidentiality
* Due diligence
Due diligence is the investigation or exercise of care that a reasonable business or person is normally expected to take before entering into an agreement or contract with another party or an act with a certain standard of care.
It can be a l ...
* Gag order
* Non-compete clause
In contract law, a non-compete clause (often NCC), restrictive covenant, or covenant not to compete (CNC), is a clause under which one party (usually an employee) agrees not to enter into or start a similar profession or trade in competition agains ...
* Physician–patient privilege
* Severance package
A severance package is pay and benefits that employees may be entitled to receive when they leave employment at a company unwillfully. In addition to their remaining regular pay, it may include some of the following:
* Any additional payment base ...
References
External links
Information about non-disclosure-agreements (NDAs)
published by the UK Intellectual Property Office
The Intellectual Property Office of the United Kingdom (often referred to as the UK IPO) is, since 2 April 2007, the operating name of The Patent Office. It is the official government body responsible for intellectual property rights in the UK ...
- (''2018-01-15'')
Confidentiality and Confidential Disclosure Agreements (CDA)
booklet edited by the UK Intellectual Property Office
The Intellectual Property Office of the United Kingdom (often referred to as the UK IPO) is, since 2 April 2007, the operating name of The Patent Office. It is the official government body responsible for intellectual property rights in the UK ...
- (''2005-01'')
{{Authority control
Information sensitivity
Intellectual property law
Legal documents
Labour law
Secrecy
Trade secrets