Non-Disclosure Agreements – From Drafting To Enforcement

Introduction

Conducting a business comes with its own challenges. Running your corporate ship requires a
captain at its rudder to take important business decisions. But irrespective of the efficacy and
efficiency of the decisions taken by the rank and file of one’s company, the most important aspect of keeping your ship afloat in the sea of contemporary competitors, is having the proverbial edge over other companies, which conduct their operations in the same arena as that of your business. This edge is lent by airtight secrecy and confidentiality of business tactics, sales or purchase strategies and online interface algorithms.

The best of these legal fences are erected by signing of ‘Non-Disclosure Agreements’
(NDAs). Generally, these are also termed as ‘Confidentiality Agreements’. If they’re a part of
a larger, more comprehensive legal document, then they’re also included as ‘Confidentiality
Clauses’ within such agreements.

Understanding the conceptual parameters

If you don’t want others to clone the secret recipe or formula that is qualitatively substantive
to your product manufacturing or sales, then you’ve to get your employees to sign these
agreements. From trade secrets to software or algorithms, these agreements can be enforced
against the signee for any term and condition that is mandated under their clauses. NDAs
restrict the entity that signs them from disclosing or revealing the contents that are shared
between them and the parent company. This would protect your business from being
replicated by more resourceful companies.

Narrowing down the concept and culling out the legal principles from the concept of NDAs
gives us a concoction of information which signifies that it is at its core, a legal contract
amongst parties that agree upon sharing of trade secrets or confidential information, but
exclusively between themselves only. Any third-party access to such information via either of
the parties would be held to be violative of the terms and agreements of such contractual
agreements.

In this regard, the terminological extent of the word ‘information’ spreads through and covers
the scope of intellectual property that is required for conducting business. It may also cover some analogously sensitive information especially in the cases of bank-client, doctor-patient,
attorney-client confidentiality, etc.

Different Types of Non-disclosure Agreements

NDAs can be broadly classified into three different types, namely, unilateral, bilateral and
multilateral.
 In unilateral NDAs only two parties are involved, out of which, one is the receiving
party that gets the information and the other is the parent company that discloses the
information.
 The other type is bilateral NDAs. In these types of NDAs, again two parties are
involved but both the parties disclose their sensitive info with an objective of securing
it from external competing entities.
 Lastly there are multilateral NDAs where three or more parties are involved and one
party divulges its information with a legal promise from all of its contractual partners
to not divulge it to other conglomerates.

Functional parameters of NDAs

A non-disclosure agreement, as its name suggests serves some pivotal purposes of business
secrecy. Firstly, it helps in safeguarding the trade secrets or any such fundamentally integral
and significantly crucial information that indispensable to your business operations. The
entities that sign a non-disclosure agreement basically form a pact to not divulge the sensitive
information that is going to be shared betwixt them.

If any one of the parties contravenes such confidentiality clauses, then it would come with
legal repercussions. Such deterrence is necessary for two reasons. Mainly to restrict the
parties from turning on each other and obeying the terms of their contract and secondly, to
have some compensational recourse in case of a deliberate breach of contract.

Next in the line is the utility of non-disclosure agreements in the process of distinguishing
confidential information from the trivial, irrelevant, insignificant or inconsequential one.
When the lines are drawn between black and white, the grey areas spotted quickly. Similarly,
when such distinction is clearly mandated in NDAs, the signatories to it are clearly prescribed
with their duties, as regards to the dissemination of critical information.

Once signed, the parties are not at liberty to claim any ignorance of facts or law or they even cannot claim that they didn’t know what their duty was, since their role is categorically stipulated under such
agreements.

Drafting NDAs – The ABCs of documentation

Drafting an NDA is a comprehensive task that involves various carefully worded clauses that
are tailored according to each party’s specifications. Therefore, drafting non-disclosure
agreements should entail the following fundamental pre-requisites.

Firstly, it should mention the main parties that are authorized to access the sensitive info.
Moreover, it should enlist all other contracting parties and delineate their corporate identities.
Dissemination of such information would be done on a need-to-know basis, whereby any new
person who is posed to be privy to such info would be required to sign the confidentiality
clause.

Second to the parties, comes the jurisdiction to be resorted to, in the event of a dispute
between them. Amongst the entities, the one which is divulging the information should
predominantly get to decide the jurisdiction. This helps better to settle disputes in front of the
right forum.

Like any other document, the purpose of the Non-Disclosure agreement must be explicitly
stated in a precise manner. All the peripheral questions that are circumferential to the
confidential info, should be expressly covered within the length of the document.
The NDA also includes the infamous penalty clause wherein the penalties for breaking any
contractual terms stated in the Non-Disclosure Agreement, are categorically listed in the
agreement and this may even include compensatory charges for damages that are caused in
the form of lost revenue or trading opportunities or any damage that may incur filing of
criminal charges.

Another clause which can be a part of some NDAs is applicable only to the receiving party in
a particular agreement, i.e. the party that is receiving the sensitive information as stated in
that document. This clause basically restricts that party from entering into subsequent
agreements with other businesses which would require them to show that part of their
business aspects. This helps even better in the short run to sustain the confidentiality and
secrecy of sensitive info.

Suppose the receiving party is going to have access to the parent company’s employees then
it is better to add a clause in the NDA that restricts them from hiring or soliciting the
employees in business related communications, especially during the duration of validity of
the confidentiality agreement. This is the clause against employee solicitation and it can be
extended to the employees of parent company as well, so as to deter them from revealing the
information without any legal consequences. Such documents also include a provision for injunction which the business owner is granted a right to injunctive relief in the happenstance of a breach. This allows the owner to have some buffer time or breather period for seeking legal advice which is much-needed to cushion the blow in such situations.

Lastly, the validity of the agreement must also be noted within itself. This is again a boiler-
plate clause that exists in most corporate documents. The length and duration of its validity if
addressed specifically, can restrict a lot of inter-party disputes that may happen in their
absence. It is also easier to argue in court if this clause is included in the NDA. If the
information is just time sensitive, then a Non-Disclosure agreement may last either for a
stipulated time period or if the information is personal and significant then a NDA can be
valid for an indefinite period.

Threats of improper drafting in NDAs and concluding remarks

Non-Disclosure Agreements are quite crucial documents that protect the secrecy of business establishments. In protecting the business from exploitation or cloning, the legal penalties are
also hefty. But there is always a point before dispute. A point where a choice is made between the parties to go against each other. Before making that choice, the parties can resort to a referral of their co-signed NDA. Here, if the NDA is not properly drafted then it can cause huge losses to the party that is divulging the information. Improperly drafted NDAs can cause confusions in business transactions, they can be manipulated to lead to wrong conclusions. Plus, if they are drafted loosely, then they can be used to derive different interpretations that suit the receiving party and basically such agreements would fail the objective with which they were drafted.