In the business world, confidential information is a highly valuable asset that requires protection. Whether it’s trade secrets, proprietary data, or sensitive client information, ensuring this information remains confidential is crucial not only for maintaining a competitive edge, but for fostering trust.
Keeping Your Business’s Information Confidential
One primary tool used to safeguard confidential information is a Non-Disclosure Agreement (NDA). Also known as a “confidentiality agreement,” when drafted correctly, an NDA is a legally binding contract that establishes a confidential relationship between parties to the NDA. A valid and enforceable NDA sets the ground rules between the parties as to what constitutes confidential information and how, when and to whom it may be disclosed. NDAs are used frequently and are particularly important in situations involving partnerships, mergers and acquisitions, employee relationships, and dealings with contractors or vendors.
Here are seven key aspects to include in an effective NDA to protect your business interests:
1. Definition of Confidential Information
From the outset, it’s important to clearly define what is confidential. Commonly, this can include business plans, financial data, customer lists, proprietary formulas, and designs, but any information the disclosing party deems sensitive is eligible. The definition should be specific enough to cover all relevant information but broad enough to encompass unforeseen details. It also needs to be consistent. For instance, if you define confidential information as including customer names but provide those names freely in marketing campaigns, on websites or on social media, enforcement of a breached NDA based on disclosure of those customer names becomes more difficult if not impossible.
2. Obligations of the Receiving Party
Specify the receiving party’s obligations regarding handling the confidential information. This typically includes taking reasonable steps to maintain the confidentiality of the information, not disclosing it to third parties, storing the information in a way in which unauthorized individuals cannot access it and not using it for any purpose other than the agreed-upon reason.
3. Exclusions from Confidential Information
Now that we know what is considered confidential information, outline what is not. Common exclusions include information already in the public domain, information the receiving party already possesses, information independently developed by the receiving party, and information disclosed by a third party without a confidentiality obligation.
4. Duration of Confidentiality
Establish the duration for which the information must remain confidential. This period should be reasonable and reflect the nature of the information and the industry standards. Some NDAs specify a fixed term (e.g., two or three years), while others require confidentiality to be maintained indefinitely.
5. Permitted Disclosures
Specify any circumstances under which the receiving party may disclose the confidential information. This can include disclosures required by law or court order, disclosures to employees or agents who need to know the information to perform their duties, or disclosures approved in writing by the disclosing party. In instances where disclosure is permitted, often the NDA will require that the person to whom it is being disclosed to and who is not already subject to an NDA sign a separate NDA as well.
6. Consequences of Breach
Detail the consequences of breaching the NDA. This can include injunctive relief, monetary damages including liquidated damages, and any other remedies available under the law.
7. Return or Destruction of Information
Include a clause that requires the return or destruction of confidential information upon termination of the NDA or upon request by the disclosing party. This ensures that the information does not remain with the receiving party indefinitely, reducing the risk of accidental disclosure.
Tailoring the NDA to Specific Situations
While the elements above provide a solid foundation, NDAs should be tailored to fit the specific context in which they are used. For example, an NDA with an employee might include provisions related to non-solicitation, while an NDA with a potential business partner might focus on the specifics of shared business plans and strategies.
Working with a business law firm can help ensure that the NDA addresses all relevant issues and complies with applicable laws and regulations.A poorly drafted NDA can create confusion and could be deemed unenforceable under the law. Our legal professionals can provide insights and customize the agreement to meet the unique needs of your business, reducing the risk of disputes and enhancing protection. Contact us today to learn how we can help safeguard your business interests.