Non-Disclosure Agreements

Why and When to Use an NDA

• Why use an NDA? To protect confidential information shared between at least two people (parties).
• When to use an NDA? Get a signed NDA before sharing confidential information.

The purpose of a non-disclosure agreement is to protect confidential information. Some relationships, especially in business, require outside access to confidential, sensitive, and/or valuable information. Asking someone to keep a secret of that level is not always enough to protect such information. Non-disclosure agreements are used to protect trade secrets, new inventions, client information, or any other sensitive or valuable information. NDA are used to 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. 

Inventor Tip: Patent attorneys and patent agents are specially licensed by the United States Patent and Trademark Office (USPTO) to represent inventions. (Lawyers are not qualified.) The USPTO registration is based on the engineering or scientific credentials of the practitioner, not the legal credentials. Inventors get client controlled privilege to speak with a licensed patent agent or patent attorney about their invention, just like talking to a lawyer about a contract or dispute. Read more about invention confidentiality.

5 Examples of Situations when an NDA is a Good Idea

1. When protecting new inventions prior to applying for a patent, it is a good idea to use an NDA. If you need to talk with anyone about your invention who is not licensed by the USPTO, it is suggested to get a signed NDA before you talk about your creation. Frequently inventors need to verify certain elements of their inventions, and talking with an expert becomes necessary. It is recommend best practice to use an NDA before disclosing your invention.
2. When protecting new inventions during reduction to practice, it is a good idea to use an NDA. If you need to talk with an engineer or a lawyer (who is not licensed by the USPTO) about your invention, it is a good idea to get a signed NDA before you talk about your creation. Frequently, inventors work with engineers to create prototypes. This is called reduction to practice. It is recommend best practice to use an NDA before disclosing your invention to people who will help you make prototypes.
3. When protecting trade secrets, it is a good idea to use an NDA. Trade secrets are closely held confidential information that is generally protected with NDAs. It is recommend best practice to use an NDA when seeking to protect trade secrets.
4. When celebrities have parties and events, it can be a good idea to use an NDA. Celebrities sometimes display new content during parties and events. Particular pre-launch and private parties and events may be occasions to use an NDA depending on the theme and content of the party or event.
5. When businesses and celebrities are preparing press releases of future launch events, it can be a good idea to use an NDA. Business and celebrities sometimes need to share confidential information during a planned launch event that is being advertised to the public. Press releases sometimes require NDAs to ensure the owner is in control of the launch date, details, and new content displayed during these parties and events. It is recommend best practice to use an NDA when preparing press releases of future launch events.

With NDAs, one should 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 enables 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. 

4 Situations When Using an NDA Should be Considered

You should use an NDA anytime you need to protect confidential information. This can be to protect a new invention, a trade secret, a reputation, a press release of a future launch event, or to share business secrets.

For example, 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, friends, and partners. You should use an NDA whenever you share something valuable about your idea. For example, an inventor may need an NDA when:

1. Hiring a company for product development, design and/or engineering to reduce it to practice (make a working prototype), manufacturing, marketing, or sales; 
2. Discussing a sale or licensing agreement (contract); 
3. Giving employees access to confidential or trade secret information; and 
4. Pitching the invention. 

Carson Patents recommends having your own NDA when sharing information about your idea or invention. We tell our inventors to offer an NDA, don’t ask for one. We also recommend keeping an NDA ready when you have trade secrets or confidential information that you will be needing to share. 

Inventor 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. Check out our patent dos and don’ts.

What Goes Into an NDA – The Basic 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 non-disclosure agreement should include at least: 

• Names and signatures of the parties (disclosing and receiving parties); 
• Description of what is confidential (be specific – too 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; and 
• Legal provisions (the laws and jurisdiction governing the agreement). 

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

• Consequences of misuse of confidential information; 
• Terms/Provisions restricting transfer;
• Obligations of the receiving party; and
• 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 then 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 NDAs (One-Way) – Unilateral NDAs – Only Disclosing Party’s Information is Protected

Non-mutual, or one-way, 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. 

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 other things like press releases. 

If you only need to disclose confidential information and you will not be receiving any confidential information during your interactions with the other person (party) or business (party), a one-way or non-mutual NDA may be the best choice. Feel free to download and customize our free non-mutual NDA sample agreement below.

Mutual Non-Disclosure Agreement (Both Ways) – Both Parties Information is Protected

Mutual and bilateral NDAs are two-party agreements where both parties are the 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. In other words, both people can talk about their confidential information under the agreement.

Mutual and multilateral NDAs are agreements between three or more parties where all parties are the 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 can share confidential information. Mutual NDAs are also know as two-way, bilateral, and multilateral NDAs. 

If you need to both disclose and receive confidential information during your interactions with the other person (party) or business (party), a two-way or mutual NDA may be the best choice. We have sample agreements for two-party and for multiple-party NDA circumstances. Feel free to download and customize either of our free mutual NDA sample agreements below.

Advantages and Disadvantages of Using an NDA

The obvious advantage of using an NDA is the protection of confidential information. NDAs can also offer clarity on what can and what cannot be shared with others and can make clear any consequences of a violating disclosure. They are also low cost. In fact, we have three free NDA samples available to download and use above. Carson Patents can also write your generic NDA agreement for you – many for as little as $800. Fully customized agreements are available from $2400. 

4 Advantages of Using an NDA:

1. Protecting Confidential Information: Because NDAs are enforceable in the courts, NDAs provide a legal framework for people to protect their confidential information from competitors or third parties. By signing an NDA, recipients of confidential information are aware and agree to keep the information confidential.
2. Preventing Misuse of Information: Because NDAs state the limits of use of the confidential information, NDAs can prevent people from using the confidential information in ways that are detrimental to the owner. For example, an NDA may prohibit a former employee from using the company’s trade secrets to compete with the company after leaving their employment.
3. Creating Trust: Because NDAs spell out the importance of the agreement, NDAs can create a sense of trust between parties. By signing an NDA, both parties understand the importance of confidentiality and that each is committed to protecting the other’s interests.
4. Encouraging Collaboration: Because NDAs open the communication channels, NDAs can be a way to encourage collaboration between companies. By agreeing to protect each other’s confidential information, companies can work together to develop new products or technology.

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. For example, NDAs after employment has started can be viewed as a statement of your lack of trust in an employee. 

4 Disadvantages of Using an NDA:

1. Potential Legal Costs: Because NDAs can be complex legal documents, and it may be necessary to hire a lawyer to draft or review them. This can lead to additional legal costs for the parties involved.
2. Limited Protection: Because an NDA can only protect the information that is defined as confidential within the agreement. If information is not properly identified as confidential or if it is already publicly available, the NDA may not be effective in protecting it.
3. Limited Enforceability: Because NDAs result in disclosing confidential information, NDAs may be difficult to enforce in some situations. For example, if the recipient of the confidential information shares it with a third party, it may be difficult to track down and take legal action against that third party.
4. Deterrent to Collaboration: Because NDAs call attention to the issue of trust, some parties may be reluctant to sign an NDA because it can be perceived as a sign of distrust or an indication that the other party is not interested in true collaboration.

Inventor Tip: Don’t surprise people with an NDA or a request for one. Instead, use one of the three sample NDA contracts (link buttons above), and offer one when the time is right – before you talk about your creation.