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Non-Disclosure Agreement | NDA

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Non-Disclosure Agreement | Understanding The NDA

A non-disclosure agreement, or NDA, is a valuable document that helps ensure the confidentiality of your key business information.  A well-crafted NDA protects your business from people who would use your information for their own benefit and outlines your path of recourse should you need to take action against another party.  Having a NDA in place can be invaluable in protecting your company ideas and information.

What is a NDA?

NDA - Non-Disclosure Agreement FormThe NDA is essentially a  confidentiality agreement between two parties who wish to share certain information with one another, but desire to restrict third-party access to that information.  

The NDA outlines what information is covered under the agreement and holds one or both parties accountable, creating a confidential relationship between the two parties.

The more familiar forms of NDA’s are things like doctor-patient confidentiality, attorney-client confidentiality, and bank-client confidentiality.  These NDAs are fairly well-understood and straightforward, but take a more complex, specific form when they are applied to companies and their employees.

a NDA can be used between two businesses, often when they are deciding whether or not to collaborate and need to know more about each other’s practices to make a decision.  They can also be used between employers and their employees to restrict the flow of sensitive information such as client lists, business plans, or a manufacturing process.

NDA’s are designed to protect proprietary information and trade secrets, and generally cover non-public information about the company.  Like all contracts, they cannot be enforced if the information the agreement covers is a felony. Aside from high-level criminal activity, however, a NDA is relatively iron-clad — it gives companies legal recourse to go after those who share confidential or proprietary information.  

The NDA is an important document to protect the trade secrets of your business.  It serves to establish the terms of your relationships with your employees and provides you with a method of recourse if those terms are violated.  It is therefore a very important legal base to cover!

Why do I need a NDA as an employer?

Having a NDA in place protects your business from those who would share its trade secrets by creating a legally binding confidential relationship between you and your employee. It allows you to keep secret information secret and creates consequences for violation of the agreement.  Creating and enforcing a NDA is about protecting your business from harm and empowering your company to seek damages in the event of a violation.

Think of it this way:  your business ideas should be treated no differently than other aspects of your business.  Copyrights exist to protect your expression of your ideas through music, software code, a photograph, etc.  Patents exist to protect your idea in the form of a useful invention. NDAs exist to protect your business ideas, plans, and processes and are therefore an important tool in your legal kit.

How long does a NDA stay in effect?

This varies depending on the specific terms of the NDA in question and is ultimately up to you to specify.  Generally, the average term of confidentiality is 3-5 years, but can be defined anywhere between one year and indefinitely.  Some trade secrets, like client or customer information, are likely to change within a number of years and therefore need shorter terms in order to be effective, while others, like the formula for a soft drink, require continued secrecy.    

It is important to consider your needs when determining the term of confidentiality for your NDA.  How sensitive is the information you’ll be sharing with the other party? Will you be sharing trade secrets, such as a formula or key manufacturing process, or will the information be more changeable, such as client or vendor lists?  Three to five years is often sufficient, unless you are sharing key formulas or processes that will require that confidentiality be maintained in perpetuity.

It should be noted that, if you end up having to sue for breach of a NDA, you will need to prove that you took other measures to protect your confidential information.  Any software you use to secure your data will become important, as will other concrete strategies you use to maintain confidentiality.

Are there any samples or templates I can use to get me started?

There are a number of NDA templates available online, both for free and at cost.  These templates can usually be customized to suit your specific needs and terms.  Using a template takes the guesswork out of crafting your own from scratch and makes approaching the essential components of your NDA easier, allowing you to focus more on the important details and less on the legalese.  

When considering a NDA, it is important to include the following information:

  • Outline the parties involved in the agreement
  • Define confidential information.  Be detailed here, and include all types of information you want kept confidential.
  • Set the disclosure period.  This is the period of time during which shared information will be considered confidential.  For example, you could set a disclosure period of one year, and any information shared after that year is up would not be considered confidential.
  • Outline any exclusions from the confidential information, such as if the other party has prior knowledge or the material is available to the public.
  • Make provisions for the appropriate transfer of information.
  • State the term of confidentiality in years.  3-5 years is common, but you can customize this term to suit the needs of your information and your business.
  • State the term, in years, that the agreement is considered binding.
  • Describe any actions that need to be taken with confidential materials upon ending of the agreement, such as destruction or deletion of sensitive files.
  • Outline the obligations of the second party.  This generally includes restriction of use to enumerated purposes only, to use appropriate and reasonable efforts to maintain confidentiality, and to ensure that anyone the information is disclosed to has a need to know the information and also maintains its confidentiality.  
  • Describe types of possible disclosures, being as detailed as possible.  

Most templates available will include this information, but it is always a good idea to check over your documents before putting them into effect.  If you’re really unsure or have very specific requirements, it might be good to see a legal professional and clear up any confusion.

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Dan Trapp is a longtime Internet marketer that works on Content @Everlance. When he's not busy tapping keys for the Everlance blog he's attempting to convert clicks into happy users.

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