10 Things You Didn’t Know About Non-Disclosure Agreements

Post image

People hate signing non-disclosure agreements.

Your advisors, suppliers and contractors expect you to trust that they’ll keep your confidential information under wraps, without getting caught up in legals. They might even say NDAs are not worth the paper they’re written on - heard that before?

Well, as it turns out, that’s not quite true. And there are indeed times when maintaining confidentiality is critical and an NDA might save the day.

In this post we’ll tell you 10 things you probably didn’t know about non-disclosure agreements and some basic rules around confidentiality. But if you just need a lawyer to help you out, you can get free quotes here.

Here we go:

1. I didn’t get my supplier to sign an NDA, can the law still protect me?

Yes. Even without an NDA, the law protects people who give confidential information to people who then make use of it or disclose it to other people, in breach of trust.

2. When does the law provide protection?

There are several factors a court will look at:

  • The information must be confidential (see list below).
  • It must have been clear to the recipient that it was meant to be kept confidential.
  • The recipient must have made use of the information in a way which was not authorised by the owner of the information.
  • The owner of the information must have suffered some detriment as a result of the unauthorised use.

The more ‘important’ or clearly ‘secret’ the information, the easier it will be to protect. So, for example, it is usually possible to protect trade secrets or carefully protected customer lists.

What is “confidential information”?

The information must have involved some thought or effort.

The owner must believe that disclosing the information would cause them damage or would give advantages to their rivals or others.

The owner must believe the information to be confidential or secret and not already in the public domain.

In deciding whether information is confidential in nature, a court will consider what is common practice in that particular industry.

3. My trade secrets are being used by my manufacturer - what can a court do?'

If you can prove the above factors in court, a judge can order them to:

  • stop doing something (i.e. an injunction preventing them using your trade secrets); or
  • pay back the profits they earned as a result of the breach.

4. So why bother with an NDA at all?

There are a few good reasons:

i) Non-disclosure agreements provide written evidence of the factors we talked about above.

Evidence that:

  • the information has been disclosed;
  • that the person who gave it considered it to be confidential and gave in on that basis; and
  • the recipient agreed this.

So, the more clearly the NDA actually describes the information to be protected, the better, as there is less room for doubt.

ii) NDAs are contracts, so when someone breaches a contract you can sue and claim damages.

iii) Finally, an NDA can include extra clauses that go beyond confidentiality, like non-compete or non-solicitation clauses. Having confidentiality obligations can help you argue these types of restrictive clauses are enforceable if the other party might argues they are illegal restraint of trade.

5. Should I use an NDA if I’m looking to patent something?

YES. If you have something you are thinking of patenting then you do want to protect it with an NDA. You lose a right to protection for a possible patent if it becomes public before you patent it.

Disclosing details under the terms of an NDA can protect you from losing the patentability.

6. Should I ask an angel investor or venture capitalist to sign an NDA?

NO. Unless you’re patenting something (see above), don’t bother asking. Not because you don’t have good reason to, but because they’ll generally refuse to sign one.

You might also come off looking like an amateur - a little research will tell you many VCs would prefer passing on a deal than sign an NDA.

7. How long do NDAs last?

You’ll often see NDAs lasting for 2 to 5 years. But NDAs will generally say that once information is made public, that loses its ‘confidentiality’ and people will be free to disclose that information.

However, you could specify that some information must be kept confidential forever (subject to it becoming public of course).

A few examples include:

  • non-patentable know-how
  • lists of customers
  • personal information about the individuals involved in a project

8. What’s the difference between a one-way NDA and a mutual NDA?

If you’re disclosing confidential information to someone, but they’re not disclosing anything to you - it’s a one-way NDA. For example, disclosing your secret formula to a manufacturer would be a one-way disclosure.

But if for example you were considering a joint venture, where you’re both ‘opening up the books’ to each other, the disclosure of confidential information is two-way, or in other words ‘mutual’.

9. Does it matter who signs an NDA?

Yes. We’ve seen NDAs signed by employees or company representatives who simply don’t have the authority to bind their employer in this way.

You should head up the chain to make sure the right person signs on the dotted line. It’s best to get a company director or an ‘officer’ of an institution to sign your NDA (or any contract for that matter).

10. Where can I get a template NDA?

A quick Google search for “non-disclosure agreement template”, “confidentiality agreement template” or even “NDA template” will give you a tonne of options.

You might be wondering: how do I pick the right one?

There are several types of non-disclosure agreements. Whether they're one-way NDAs, mutual NDAs (as mentioned above) or more generalised, short-form NDAs through to more specialised NDAs tailored to suit scenarios such as:

  • business deals
  • inventions
  • employment
  • creative concepts/designs

And if you need help?

Bring in the pros: a commercial solicitor will get to know your business, figure out what you need, pick the right template to work from (yes, they too use templates) and craft the right clauses to use.

Either way, you’ll now be all the wiser when it comes to signing or handing over your NDA for others to sign.

This post was co-authored by Andrew James of OnHand Counsel
and Lexoo.