The Essential Guide to Understanding Non-Disclosure Agreements

In today’s fast-paced business world, confidential information is a valuable asset that can give your company a competitive advantage. To protect confidential information, many companies choose to use a Non-Disclosure Agreement (commonly referred to as an “NDA”). What is an NDA? It’s a legal contract that restricts one party from disclosing confidential information of another party. NDAs can be unilateral, bilateral, or multilateral, and can be used in a variety of situations, including when a company is developing a new product, when a company is negotiating a business deal, or when a company is hiring a new employee.

The legal terms of NDAs can vary widely depending on the circumstances. If your company needs an NDA, it is important to use an NDA that is customized to the needs of your business rather than relying on a generic NDA template. SixFifty’s Non-Disclosure Agreement generator is the world’s first automated solution that creates a high-quality NDA customized to the needs of your business while adhering to standard NDA best practices.

What is a Non-Disclosure Agreement?

A Non-Disclosure Agreement is a legal contract between two or more parties, in which one party agrees to keep confidential the valuable, sensitive, or proprietary non-public information of the party or parties to the agreement. NDAs can be unilateral, bilateral, or multilateral, depending on the number of parties involved:

• Unilateral NDA. Under unilateral NDA, only one party is restricted from disclosing confidential information disclosed under the agreement.
• Bilateral NDA. Under a bilateral NDA, both parties are restricted from disclosing confidential information disclosed under the agreement.
• Multilateral NDA. Under a multilateral NDA, multiple parties are restricted from disclosing confidential information disclosed under the agreement.

When should you use an NDA?

You should use an NDA if your company will either be disclosing its own confidential information that you want to protect, or if your company will be disclosing a third-party’s confidential information held by your company that is subject to confidentiality obligations. Confidential information is generally defined in NDAs as valuable, proprietary, or otherwise sensitive non-public information disclosed by one party (often defined as the “Discloser”) to the other party (often defined as the “Recipient”). Confidential information can include, but is not limited to, trade secrets, business plans, product specifications, financial information, or other non-public information created or controlled by the discloser. By using an NDA, you can help ensure the recipient of the confidential information will not use the confidential information for purposes outside the defined scope of the NDA. Using an NDA can help your company maintain a competitive advantage while protecting your company from potential legal risks.

Different types of NDAs

Non-Disclosure Agreements are used in many different types of situations:

• Potential Employees. For potential employees, NDAs serve as a way to protect the company’s confidential information by prohibiting the potential employee from disclosing it to third parties either before or after the employee is hired. NDAs can be a condition of employment, and employees are usually required to sign them as a part of the hiring process. It is important for potential employees to understand the terms and restrictions of the NDA, as well as their obligations to keep the company’s confidential information confidential, even after their employment has ended.
• Current Employees. NDAs are also important for current employees, as they serve as a reminder of the employee’s obligations to protect the company’s confidential information. NDAs can be executed at any time during an employee’s tenure and serve to reinforce the importance of maintaining the confidentiality of sensitive information. Employees should be responsible for understanding and adhering to the terms of the NDA, including the types of information that are considered confidential and the restrictions on the use and dissemination of that information. It is important for current employees to take their obligations under the NDA seriously and to maintain the confidentiality of sensitive information.
• Independent Contractors. Similar to employees, companies also frequently require independent contractors to sign a non-disclosure agreement prior to beginning the engagement. This is to ensure that any confidential information shared between the company and the independent contractor remains protected. NDAs serve as a legally binding agreement between the parties, outlining the obligations of the independent contractor to maintain the confidentiality of sensitive information and to use it only for the purpose of the engagement. It is important for independent contractors to thoroughly review and understand the terms of the NDA prior to signing it, as they will be held accountable for upholding the terms of the agreement throughout the duration of their engagement.
• Potential Customers. NDAs may also be used in the context of potential customers. Companies may require potential customers to sign a NDA prior to sharing confidential information about the company’s products, services, or business practices. This helps to ensure that the confidential information remains protected and is not disclosed to third parties.
• Potential Vendors. Companies may also require potential vendors to sign NDAs to protect the company’s confidential information during the vendor selection process. This can include information about the company’s products, services, and business practices, as well as sensitive financial information. NDAs can help ensure that confidential information is protected during negotiations and is not disclosed to third parties.
• Potential Partners. For potential joint ventures or joint development engagements, NDAs are typically the first step before the parties dive into substantive discussions. Partnership NDAs typically include a high-level description of the types of confidential information that will be shared and the purpose of the NDA, such as exploring a potential joint development engagement between the parties with respect to the products or services of one or both parties.
• Potential Investors. Companies may also require potential investors to sign NDAs prior to sharing confidential information about the company’s financial performance, business plans and strategies. This helps to protect the company’s confidential information and maintain investor trust. NDAs can also help prevent the dissemination of sensitive information that could impact the company’s stock price or market position.
• Non-Circumvention Provisions. NDAs can also include non-circumvention provisions, which prohibit parties from using confidential information to circumvent or avoid doing business with the disclosing party. These provisions help to ensure that confidential information is not misused for personal gain or to the detriment of the disclosing party.
• No Analysis or Reverse Engineering Provisions. NDAs may also include provisions that prohibit parties from analyzing or reverse engineering confidential information. This helps to ensure that the confidential information remains protected and is not used for unauthorized purposes.
• Non-Solicitation Provisions. NDAs may also include non-solicitation provisions, which prohibit parties from soliciting the employees, customers or business partners of the disclosing party. These provisions help to protect the disclosing party’s business relationships and maintain the stability of its workforce.

Common considerations with NDAs

When creating or reviewing an NDA, it is important to consider the following factors:

1. Definition of Confidential Information. The definition of confidential information should be clear and specific, and should include any exclusions or exceptions. For example, the definition of confidential information could be limited to information that is clearly marked as confidential or that is known by the recipient to be confidential due to the circumstances under which it was disclosed.
2. Term of the Agreement. The term of the NDA should be specified and should be long enough to protect the confidential information, but not so long that it becomes overly restrictive. A typical term for an NDA is two to five years.
3. Restrictions on Use. The NDA should specify the restrictions on the use of the confidential information, such as whether it can be used for any purpose or only for a specific purpose.
4. Exclusions from Confidentiality. The NDA should specify any exclusions from confidentiality, such as information that is already in the public domain or information that is independently developed by the recipient without the use of the confidential information.
5. Remedies for Breach. The NDA should specify the remedies available to the disclosing party in the event of a breach, such as injunctive relief, monetary damages, or a combination of both.
6. Governing Law. The NDA should specify the governing law, which is the law that will be used to interpret the agreement and to resolve any disputes that may arise.

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