A non-disclosure agreement (NDA) sets contractual limits on the use and disclosure of specified information. Enforceability and remedies depend on the terms, facts, and applicable law. Signing does not make every clause enforceable or make a lawsuit inevitable. The agreement should distinguish the disclosure period from the duration of confidentiality obligations, including any treatment of qualifying trade secrets.
An NDA can help protect confidential information, but it has limits and should be tailored to the exchange. It is also commonly called a confidentiality agreement.
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? Consider confidentiality and permitted-use terms before sharing valuable nonpublic information with an outside recipient.
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.
An NDA may address confidential business or technical information, but it should not be described as a way to suppress disclosures that applicable law protects.
Inventor Tip: Patent attorneys and registered patent agents can represent applicants in patent matters before the USPTO. Confidentiality duties and evidentiary privilege are different protections, and privilege depends on the communication, purpose, and forum. A non-patent attorney may still advise on contracts and owe professional confidentiality duties. At Carson Patents, a separate NDA is ordinarily not required for an invention consultation. Read more about invention confidentiality.
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5 Examples of Situations when an NDA is a Good Idea
- Before discussing an unfiled invention with a prospective business partner, consider whether an NDA is appropriate and whether the discussion can begin with non-confidential information. Filing strategy and disclosure timing should be evaluated separately.
- When working with engineers or prototype developers, address confidentiality, permitted use, and ownership of resulting work before sharing technical details. An NDA alone does not assign intellectual property created during the project.
- 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.
- 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.
- 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
Consider an NDA when valuable nonpublic information must be shared and the recipient’s existing obligations do not adequately address the proposed exchange.
For an invention project, the need for an NDA depends on the recipient, purpose, information, and existing professional or contractual duties. Examples include the following:
- 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);
- Giving employees 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 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: An NDA cannot make already-public information secret again. Undisclosed technical details may still merit protection. If you have discussed an invention publicly, assess exactly what was disclosed and the effect on possible patent rights promptly. See our patent dos and don’ts.
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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);
- Duration of confidentiality obligations, including any separate treatment of trade secrets;
- Appropriate exclusions, such as qualifying public information, prior knowledge, independent development, and lawful third-party receipt;
- Statement of the permissible uses of the confidential information; and
- Governing law, forum, required disclosures, and legally protected reporting; include any notices required for the relationship.
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 only one party expects to disclose protected information, a one-way NDA may fit. The downloadable sample is a starting point for review, not a determination that its terms are appropriate or enforceable for your transaction. Confirm the parties, purpose, exclusions, use restrictions, duration, and governing law before signing.
1 Free Editable One-Way NDA Sample (docx format)
Download One-Way NDA Sample (docx)
Inventor Tip: Use a mutual NDA when both sides expect to disclose protected information. A one-way NDA may fit when only one side will disclose it. The choice should follow the exchange rather than a blanket preference.
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Mutual NDAs (Both Ways) – Multilateral NDAs – 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 both sides expect to disclose protected information, consider a mutual NDA. The two-party and multi-party samples below require review and tailoring; more parties can create additional responsibility and disclosure issues. The samples have not been revised as part of this webpage cleanup.
2 Free Editable Two-Way NDA Samples (docx format)
Download Two Party NDA Sample (docx)
Download Multiple Party NDA Sample (docx)
Important Tip: A one-way NDA protects the identified disclosing party’s information. It does not, by itself, prohibit the recipient from sharing its own information. If you do not want to receive confidential material, address that separately.
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Advantages and Disadvantages of Using an NDA
An NDA can clarify which information is protected, how it may be used, and the parties’ obligations. We provide sample agreements for discussion and can evaluate an appropriate drafting or review engagement. Professional fees depend on the transaction, parties, and requested scope; contact us for a written quotation.
4 Advantages of Using an NDA:
- Protecting Confidential Information: A properly tailored, enforceable NDA can provide contractual remedies for misuse or unauthorized disclosure. It also helps communicate the recipient’s obligations.
- Preventing Misuse of Information: Permitted-use restrictions can limit use of covered information. Those restrictions must be evaluated under applicable law, particularly in employment settings.
- Clarifying Expectations: An NDA can help the parties understand the information exchange and their respective obligations. A one-way agreement protects one side’s covered information; a mutual agreement addresses both sides.
- 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:
- 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.
- 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.
- 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.
- 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.
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