Non-Disclosure Agreements

What is a Non Disclosure Agreement?

A non-disclosure agreement (NDA) is a contracted agreement between private parties that certain information will remain confidential. An NDA’s status as a contracted agreement means that it is enforceable by law. If signed, an NDA binds those who sign it to the information outlined in the contract. The signatures also prevent the parties from discussing any of the described confidential information with non-authorized parties. Simply put: if you sign an NDA, you will face legal action if you discuss the confidential information in the contract. A non-disclosure agreement can continue indefinitely or can include a set end date that is stipulated in the contract. 

Bottom line: A non disclosure agreement is a legally binding agreement. Violating a non-disclosure agreement can lead to legal penalties.

NDAs are also known as Confidential Disclosure Agreements or Confidentiality Agreements.

Why use an NDA

What is the purpose of a non disclosure agreement? Some relationships, especially in business, can require outside access to confidential, sensitive, and/or valuable information. Asking someone to keep a secret of that stature is not always enough to protect such information. Non-disclosure agreements are used to protect trade secrets, client information, or any other sensitive or valuable information. They make sure that the good ideas of one party will not be unfairly stolen by people that they are negotiating with. Businesses often use them when negotiating a contract or deal. NDAs can also be used in other scenarios by individuals who wish to protect their reputation or by inventors who wish to prevent others from copying their ideas. 

Examples

  • Protecting new inventions prior to applying for a patent 
  • Protecting new inventions during reduction to practice 
  • Protecting trade secrets
  • Celebrity parties and events 
  • Preparing for press releases 

Best Practices with NDAs

The best practices with NDAs are to know at least these three things: 1. when to use one, 2. what belongs in one, and 3. how long the protection lasts.

Be sure you know when to use an NDA and what should be included. Having a standard form of NDA to use, or even just a general idea about how non-disclosure agreements work, is helpful and potentially profitable for both individuals and businesses. An NDA enable parties to work together in confidence. Some things to pay careful attention to when signing an NDA are the expiration date, extent of the description in the contract, preciseness of the language, and signatures of both parties. It is important to read non-disclosure agreements and pay close attention to the details to ensure that both parties are protected and contractually bound. 

When to use an NDA

You should use an NDA before you patent your idea when talking with anyone who is not a licensed patent practitioner. You are free to discuss your invention with a patent attorney or patent agent, but you should consider using an NDA when sharing with anyone else – even family. You should use an NDA whenever you share something valuable about your idea. For example, you may need an NDA when:

  • hiring a company for product development, design and/or engineering to reduce it to practice (make a working prototype), manufacturing, marketing, or sales; 
  • discussing a sale or licensing agreement (contract); 
  • employees have access to confidential or trade secret information; and 
  • pitching the invention. 

Carson Patents recommends having your own NDA when sharing information about your idea or invention. We recommend keeping a non-mutual NDA ready when you have trade secrets or confidential information that you will be needing to share. 

Important Tip: If you are talking about your idea or invention at parties or you have announced it on social media or a website, it is now publicly available and no longer confidential. In other words, if it is already out there, you don’t need an NDA.

What Goes into an NDA – The Content of an NDA

Nondisclosure agreements are customizable and can be written specific to any situation where sharing confidential information is involved. When you are reading or checking over an NDA, there are a few pieces of information that need to be addressed in the agreement. The content of a nondisclosure agreement should include at least the following: 

  • Names and signatures of the parties (disclosing and receiving parties) 
  • Description of what is confidential (be specific, over-broad may not be enforceable) 
  • Disclosure period (the time period confidential information can be disclosed) 
  • Expiration date (the time period of protection) 
  • Exclusions from confidentiality (if there are any) 
  • Statement of the permissible uses of the confidential information 
  • Legal provisions (the laws and jurisdiction governing the agreement) 

Optional/Other things that are commonly included in non-disclosure agreements include: 

  • Consequences of misuse of confidential information 
  • Terms/Provisions restricting transfer 
  • Obligations of the receiving party 
  • Disposition of confidential materials when the agreement ends

Kinds and Types of Non-Disclosure Agreements

There are three types of non disclosure agreements that are also divided into two different kinds. The three types of basic non disclosure agreements are unilateral, bilateral, and multilateral. The two kinds are mutual and non-mutual. The types and kinds refer to the parties of the agreement. The parties are either the people signing the agreement or the companies that are represented by the people signing the agreement. 

Non-Mutual – Unilateral NDAs – only disclosing party’s information is protected

Non-mutual and unilateral NDAs are two-party or multiple-party agreements having a disclosing party and a receiving party or parties who sign the contract. The disclosing party is the person sharing the confidential information or material. A receiving party is a person who is told or shown the confidential information or material. Non-mutual NDAs are one-sided; and only the disclosing party may share confidential information with the expectation of the information being kept secret for the duration of the agreement. The non-mutual NDAs are also known as one-way or unilateral NDAs. 

Non-Mutual/Unilateral NDAs are simple non-disclosure agreements used to protect new inventions during reduction to practice (engineering and making prototypes), trade secrets, and for things like press releases. 

Important Tip: It is not uncommon for the receiving party of a unilateral/non-mutual NDA to request the use of a bilateral/mutual agreement. 

Mutual Non-Disclosure Agreement – Bilateral and Multilateral – protect all parties information

Mutual and bilateral NDAs are two-party agreements where both parties are disclosing and receiving parties. Whichever party is sharing confidential information is the disclosing party, and the other party is the receiving party. The receiving party becomes the disclosing party when they share confidential information. The agreement is two-way because both parties can share confidential information and be protected under the contract. 

Mutual and multilateral NDAs are agreements between three or more parties where all parties are disclosing and receiving parties. Just like with the bilateral version, whichever party is sharing confidential information is the disclosing party and the other parties are the receiving parties.

Mutual NDAs are contracts where both sides could potentially share confidential information. Mutual NDAs are also know as two-way, bilateral, and multilateral NDAs. 

Important Tip: If you do not wish to receive any confidential information from the other party, it can be beneficial to pursue a non-mutual unilateral NDA. Non-mutual unilateral NDAs are one-sided and only one side may share confidential information. 

Advantages and Disadvantages of Using an NDA

The obvious disadvantage of using an NDA is the implication of mistrust. NDAs can create an environment that appears untrusting. Using an NDA may even cause some people to not want to get involved. NDAs after employment has started can be viewed as a statement of your lack of trust in an employee. 

The obvious advantage using an NDA is the protection of confidential information. NDAs can also offer clarity on what can and what cannot be shared and can make clear any consequences of a violating disclosure. Plus, they are low cost. In fact, we have free templates available to download and use. Carson Patents can also write your agreement for you – many for as little as $500. Fully customized agreements are available from $800.