When should I get a Confidentiality/Non-Disclosure Agreement?

If you intend to share valuable know-how or sensitive commercial information with a third party, or are otherwise in the early stages of possible collaboration involving the disclosure of proprietary material, it is crucial to do so under the framework of a signed non-disclosure agreement (NDA).

Why is it Important?

NDAs oblige the recipient of confidential information to keep that information secret and to only use it for a defined purpose. Without a written confidentiality agreement in place, sensitive information will only be protectable if it falls within the narrow area protected by the law of confidence. That is, if the information is inherently confidential in nature, and is disclosed in circumstances in which a reasonable person would have realised that the information was being given to him/her in confidence. Whether the subject of the disclosure involves trade secrets, commercial information, plans or ideas, relying on the law of confidence may leave you vulnerable when embarking on a joint project or divulging confidential data.

What it is / what should be included?

Confidentiality agreements establish the framework for the preservation and disclosure of sensitive information, so that it is not misused or exploited to the unfair advantage of the disclosing party. The following points should form the basis of any well-drafted NDA:

  • Definitions of ‘confidential information’ and ‘permitted purpose’. The former should be wide enough to capture any classified material and the latter as narrow as possible to enable the recipient to use the information only for the stated objective.
  • Treatment of confidential information. At a minimum, this will impose obligations to hold the information in strict confidence, use it only for the permitted purpose, and not divulge it without the discloser’s consent.
  • Any time limits for which the agreement remains in force.
  • Requirement for return or destruction. The discloser should be entitled to request these actions in respect of the information, if and when it becomes necessary.
  • Carve-outs. Lay down the circumstances in which otherwise secret information will not in fact be confidential, e.g. when it is already in the recipient’s possession or the public domain.
  • Inadequacy of damages. Where the recipient breaches the agreement, this entitles the discloser to seek non-monetary recourse where, for example, an injunction preventing disclose will be more useful.
Exactly how the above areas are dealt with will somewhat depend on whether the agreement is drafted from the perspective of the discloser, the recipient, or whether the exchange of information will in fact be two-way.

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