What is a confidentiality agreement or an NDA?
Essentially, a Non-Disclosure Agreement or NDA is a contract that expressly prohibits the disclosure or use without permission of protected information as defined in the agreement.
Thus, these agreements are made to protect certain sensitive information shared with people within a company’s structure or with third parties. Whether it is about practices, new ideas, plans, or documents, confidentiality plays an important role in maintaining market competitiveness.
In general, contracts of any type may contain a section dedicated to the confidentiality obligations that the party/parties undertake to observe under the contract. Still, there are situations where the parties prefer to conclude a separate confidentiality agreement. In particular, the situations in which a confidentiality agreement is concluded are those preceding the conclusion of a contract of another nature or a transaction or collaboration. Non-disclosure agreements are common for companies entering into negotiations with other companies or those wishing to develop a business and looking for collaborators or investors. They allow parties to share sensitive information without fear of it falling into the hands of competitors.
Therefore, as some contracts involve a phase of negotiations that may last for a longer period, during which one or both negotiating parties may make available to the other party certain confidential information, an NDA may be concluded to protect this information. Parties signing an NDA agree that sensitive information they may obtain will not be available to others.
Depending on the content of the obligations that the parties establish, there are two types of such contracts:
-unilateral: when there is a sender of confidential information and a recipient who is under an obligation of non-disclosure; such a contract is concluded, for example, between a company and a supplier, an employee or potential employee or between a contractor and a potential collaborator. Thus, only one party passes on confidential information, and the other party undertakes not to disclose it further;
-bilateral: when both parties to a contract share sensitive information; this may be in cases where negotiations are taking place to conclude a contract or business-to-business transactions, for example. Both parties are exchanging confidential information and are bound to respect the confidentiality of the data received.
What are the key elements of the confidentiality agreement?
For an NDA to be effective, its content should be:
Defining confidential information.
This section will guide the contract, which defines or lists sensitive, confidential information. This should be defined by way of example, as comprehensively but not necessarily exhaustively as possible, listing what will not be disclosed as broadly as possible. As an example:
“Confidential Information” means all information relating to Shipper’s products, services, and business, professional or other operations, including, but not limited to, financial documents, financial plans, customers, suppliers, business partners, marketing strategies, business, administrative or technical methods, sales, products, services, development plans…”
It is also recommended here to insert a comprehensive clause classifying as confidential information any information that can reasonably be assumed to be of a confidential nature.
Exceptions, i.e., defining information that will not be protected as confidential
Exceptions include information that is required to be disclosed because it is public under applicable law, information that the party has already learned from another source or has arrived at on its own through inference, or information that requires disclosure in legal proceedings.
It may also include third parties to whom the information may be transmitted without constituting an infringement, such as the parties’ representatives, employees, or advisers.
Content of the obligation
The section covers the elaboration of the non-disclosure obligation, i.e., what specific actions a party (or both, as the case may be) must refrain from – e.g., copying, reproducing, providing access to third parties without written consent – and what duties it has – using appropriate security measures with respect to the information.
Duration of the obligation
As a rule, the sender wants a longer shelf life, and the recipient wants a shorter one. The choice of the term must be carefully made so that the agreement fulfills its purpose. The parties must state it clearly in the contents to avoid possible differences of interpretation in the event of a subsequent dispute.
Last, but not least, an effective NDA also sets out the legal repercussions of the breach of the agreement, which usually take the form of damages for the harm caused, so that the amount of compensation that the party at fault will have to pay as a result of the breach of the confidentiality obligation can be determined. They may be accompanied, where appropriate, by the contract’s termination or the collaboration based on which they were concluded.
If you need a lawyer you can contact Blaj Law – a Romanian law firm based in Cluj-Napoca