In business, it is inevitable that situations will arise that require a business to share confidential and proprietary information. This is especially the case when dealing with intellectual property. Whether disclosure is to be made to employees, potential investors, potential business partners or any other third party, businesses should consider the use of a non-disclosure agreement.
A non-disclosure agreement (NDA) can ensure that certain information is kept confidential or not disclosed without consent, and can be written to make it clear that a business retains ownership of the disclosed confidential and proprietary information. An NDA is a powerful tool that is particularly useful when dealing with intellectual property.
While there are a number of different situations when a business should use an NDA, a few situations to which businesses should pay particular attention include the following:
- Employment Agreements: Employees can have access to any and all types of confidential and proprietary information of a business, including client lists, supplier lists, manufacturer lists, and an abundant amount of invaluable internal processes. In these situations, an NDA, and/or a non-disclosure/confidentiality clause in an employment agreement, can be used to prevent employees from disclosing proprietary information, especially when those employees leave the business.
- Potential Investors: Potential investors want to know anything and everything about a business before they invest. The information sought by investors will most often include intellectual property currently owned or in development by the business, much of which may be confidential. Thus, it is imperative that businesses utilize an NDA to ensure the information provided is not later disclosed or used by the potential investors.
- Joint Development Agreements: Under most joint development agreements, the parties agree to provide confidential and proprietary information to one another to aid in the joint development of a product or potential business opportunity. Therefore, businesses should use an NDA in conjunction with the joint development agreement. The NDA should specifically set out the respective parties’ rights with respect to confidential and proprietary information. Typically, each party will seek to retain any and all rights to confidential and proprietary information disclosed to the other along with an agreement that such information will not be disclosed without the disclosing party’s prior consent.
- Service Providers: Over the course of time, a business may interact with third-party service providers for IT services, marketing and manufacturing needs, and a host of other services. Such situations will often require the business to provide and allow access to sensitive data of the business, such as client lists, product and tool designs, computer programs, and source code. An NDA can be used to guard against disclosure and use by the third party in ways not approved by the business.
Although powerful, an NDA should not be treated as a universal form that can be used in every situation. Each NDA should be tailored to the particular circumstances. For example, requirements for marking the information as confidential, and whether such requirements should be stringent or non-stringent, the term of the NDA (including limited or unlimited), if disclosure to third parties is allowed, governing law, etc. all differ depending on the circumstances. As the disclosing party, a business may want terms that are more restrictive on how a receiving party uses the information. However, as the receiving party, a business does not want to be unnecessarily burdened or restrained.
The foregoing are just a few examples of those times when the use of an NDA can be beneficial. Businesses should constantly evaluate their business practices and be cognizant of those situations in which an NDA should be utilized.