Confidentiality – NDA

In this post we will discuss the need for and key elements of a confidentiality deed, or an NDA, short for a non-disclosure agreement.

An NDA is an essential legal document which you may want to put in place before you talk to someone about your idea, invention, know-how, trade secret, or other intellectual property, and before you share information about your intangible assets, methods, business information and plans, marketing strategy, customer and supplier lists with another person or entity.
Your employees, contractors, suppliers, all need to sign an NDA with you before they gain access to your valuable information.

An NDA, properly prepared, will ensure that your unique ideas and other valuable information remain confidential and do not get stolen.  Having an NDA is especially relevant for a startup as you will be speaking to a large number of people, looking for investors, stakeholders, business partners or potential purchasers and will have to disclose your idea to those people.

The first thing to remember is that you need to put an NDA in place before you share any of your confidential information with someone.

Next and important, an NDA should contain the definition of what information will be considered as confidential. You need to describe with sufficient specificity but without disclosing the content of that information, what it is that will be confidential.

For example, you may have invented a new chemical compound which may be potentially used to treat a range of indications, neurological disorders. You can put in the description of “Confidential information” exactly that – the lead compound (to which you can give a code or nickname), the mechanism of its action and drugability, and potential application to treat medical conditions.

You may also state that anything discussed during the meeting and any material provided will be considered confidential, though you still need to indicate in relation to what subject matter those discussions will be held or material provided. You should mark written material as “Confidential” before sharing it with the other party.

The next step is to define the purpose of disclosure. Confidential information is shared for a specific purpose and the other party should be able to use that information for that purpose, as stated in the NDA, and no other purpose.

Using the previous example, the purpose can be defined as discussions and negotiations relating to the lead component with the view of exploring the possibility of research and commercialisation of a product which will incorporate that component. In this case the purpose of disclosure limits the use of the disclosed information by the other party to discussions and assessment of those potential commercial opportunities with you.

Next, in the NDA, the party to whom you will disclose your confidential information (we call that party “Recipient”), should explicitly agree that your confidential information is indeed secret and confidential and should agree to treat and keep that information confidential and not disclose it to any third party. They should take measures to keep that information secret and secure and explicitly agree to use it for the permitted purpose only.

Next, the NDA should contain exclusions to what will constitute confidential information. It may be embarrassing if some information you claim to be confidential is already public knowledge.

Standard exclusions would include information which is already publicly known or will become publicly known after disclosure through no act or omission of the recipient of that information.
Another exclusion is information which was already known to the recipient before the disclosure by you and they can prove it.
Or if that information was provided to the recipient by someone else under no obligation of confidentiality. Or it has been independently developed by the recipient without the use of your confidential information. Or when you give consent to the recipient not to keep that information confidential.

The last but not least is that in addition to having exclusions we just discussed, the NDA should also state in what limited circumstances disclosure is permitted. The recipient may need to disclose your confidential information to its employees or professional advisors in order to assess and evaluate the information, and the potential business relationship.

The exceptions need to be specifically and tightly set out. For example, you may need to allow disclosure:
• to employees of the recipient who need to be privy to the permitted purpose; or
• to legal advisers, patent attorney and other professional adviser of the recipient who know that their client is under the obligation of confidentiality to you;
• when disclosure is legally compelled by a court or other authority.

The NDA should specify when the obligation of confidentiality expires. It cannot be unlimited in time. Normally, I would suggest stating that the obligation of confidentiality lasts until such time that information disclosed to the recipient has been made publicly available other than through the action or omission of the recipient. Most certainly the other side will try to limit their obligation to keep your information confidential to few years only, which does not make sense.

There are other provisions which need to be considered, such as consequences of breach, liability for disclosure to third parties even if such disclosure is allowed by the NDA, remedies, reservation of ownership and prohibition to publish or obtain intellectual property in the information received.

You may also want to consider putting a non-compete restraint clause but this is a complex issue and will be discussed in another post.

An NDA can be a one-way obligation meaning that only one party will be under the obligation of confidentiality as the recipient of that information. Or it can be mutual meaning that both parties agree not to disclose the confidential information of the other party or use it in a way which would be against the NDA.

So, once again, who are the potential interested parties for your NDA?

These can be prospective stakeholders or business partners, your employees and contractors, suppliers and developers, investors, and any party who may, advertently or inadvertently, become privy to your valuable secret information.

You should be careful about when to use and when not to use an NDA. The form of the NDA is also important, should it be a deed or an agreement? These are different.

Also, you need to be aware that although you may have the interested party sign your NDA, you should still be careful how much information you will share with that party, and try not to spill all the beans in the first meeting. Keep the essence of your invention secret until you know that there is a genuine interest, and a deal to be done and you have assurances that the recipient will not use it for their own benefit. Enforcing an NDA is not easy and Is costly.

There are some other recognised rights to your information, such as copyright, or rights in relation to trade marks you have been using. We will discuss those in detail in other posts.