Non-Disclosure Agreement (NDA)

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What is a Non-Disclosure Agreement?

A Non-Disclosure Agreement (NDA) (also known as a confidentiality agreement) is an important legally binding contract between two or more parties. It outlines the terms and conditions under which confidential information will be shared and protected.  

It also prevents the disclosure of certain confidential information further than those parties. They can be one way (i.e., impose an obligation on one party alone) or two-way (both parties have certain obligations).  

Before disclosing any confidential information, an NDA is highly recommended and, in some circumstances, required to meet professional regulations. If you have a great new idea and want to be first to market, you would be wise to get anyone that encounters the idea to sign an NDA, this is especially true in relation to patents as you would want any information relating to the invention to remain confidential. If that information is disclosed to the public, then this may impact the registrability of the patent.

What is the purpose of a Non-Disclosure Agreement?

The purpose of an NDA is to ensure that certain commercially sensitive information remains confidential and is not shared or used in a manner that could harm the disclosing party.

It establishes clear obligations, defines the scope of confidential information, and provides a legal framework for enforcing those obligations. NDAs are essential tools for businesses and individuals to protect their valuable assets and maintain confidentiality in various professional relationships. 

When should I use a Non-Disclosure Agreement? 

Do not risk getting beaten to market with a great new idea, get those involved to sign an NDA.  

You should use an NDA before disclosing any information about your ideas, inventions, designs, and business methods and processes. This includes when you are disclosing information to potential business partners, new employees, manufacturers, contractors, accountants, investors, and marketing firms.  

What are the benefits of a Non-Disclosure Agreement? 

Having an NDA signed offers several benefits and protections for individuals and organisations. Some of the key benefits include: 

Confidentiality assurance

The primary benefit of an NDA is that it provides a legally binding commitment to maintain the confidentiality of sensitive and/or commercially competitive information. By signing the agreement, the recipient acknowledges their obligation to protect the disclosed information and refrain from sharing it with unauthorised parties. This helps create a trusted environment for sharing valuable proprietary knowledge. 

Protection of intellectual property

NDAs safeguard intellectual property rights, including trade secrets, patents, copyrights, and proprietary information. They ensure that the recipient cannot use or disclose the information for their own gain or pass it on to competitors, protecting the owner’s exclusive rights and preserving their competitive advantage. 

Control over information sharing

NDAs provide the disclosing party control over how their confidential information is used and shared. By setting clear limitations and guidelines within the agreement, the disclosing party can specify the purpose, scope, and authorised recipients of the information. This control helps prevent unauthorised dissemination and misuse of sensitive data. 

Enhanced trust and confidence

When parties sign an NDA, it establishes a mutual understanding and commitment to confidentiality. This fosters trust and confidence in business relationships, allowing for open discussions, collaboration, and the sharing of proprietary insights. NDAs show that you take the protection of confidential information seriously, making others more comfortable with disclosing sensitive data to you. 

Legal recourse in case of breach

By signing an NDA, parties establish a legal framework for addressing breaches of confidentiality. If the recipient violates the terms of the agreement by disclosing confidential information without authorisation, the disclosing party can seek legal remedies. This may include monetary damages, injunctions to prevent further disclosure, or specific performance to enforce compliance with the NDA’s terms. 

Competitive advantage preservation

NDAs help maintain a competitive edge by safeguarding proprietary knowledge and confidential business information. By preventing others from accessing and utilising your valuable information, NDAs protect against imitation, replication, or unauthorised exploitation of your innovative ideas or market insights. 

Compliance with industry and regulatory standards

In many industries, specific regulations and compliance standards govern the protection of certain types of sensitive information. By having NDAs in place, organisations demonstrate their commitment to complying with these requirements. This helps mitigate the risk of legal and reputational consequences associated with mishandling confidential data. 

Medical, health and sensitive information is one that would come immediately to mind. Client confidential information, anything that reveals that sensitive information, financial/banking/credit card details etc.

Imagine a breach of that information and having to deal with the fallout of it and explaining to clients that you did not take all reasonable and necessary steps to protect that information and have no or problematic legal recourse.  

Needing to tell the world vs needing to be first to market 

Yes, everyone has ideas (most entrepreneurs will have multiple ideas in each day). It’s the implementation that is more important than the actual idea. 

In fact, in some instances, you may want the entire world to hear about your new idea. So, you want people you tell to tell as many people as possible to gain market traction or attract the right people to your business, including a potential investor. 

But if you have a particularly good idea that has not been done in the market yet and you want to be first to market, you would be wise to get anyone that comes in contact with the idea to sign an NDA. 

When disclosing your idea, it is important to evaluate the trustworthiness and integrity of the recipient. If they have the resources, knowledge, and capacity to exploit your idea without your involvement, there may be a higher risk of them misusing or stealing your intellectual property. 

Investors will often pull the ‘relationship card’

You will hear investors say: “I don’t need to sign a Non Disclosure Agreement. I speak to hundreds of business owners every year. Don’t you trust me? Relationship is built on trust.” Guilt trip – that old chestnut. 

In such circumstances, you should at least ask them to sign an NDA. Firstly, it demonstrates that you are serious about protecting your IP (Intellectual Property). It also gives you rights and remedies if they go ahead and steal your idea, even if it is just to get someone else to build it. 

Most people do not know the investors they are pitching at very well, if at all.  

Similarly, a web-developer or other contractor who is going to know the way the product/service works in an intimate way, needs to have your complete trust and you need adequate measures in place if they breach it. 

It is simply good business. 

What are the types of Non-Disclosure Agreements? 

There are two types of non-disclosure agreements: one way and mutual. 

One way NDA

A one-way NDA is the more common type. It works like this: let us say a business wants to share some information with another party. The receiving party agrees not to disclose that information. So, it’s a one-sided agreement where only the receiving party must keep things confidential.  

It is straightforward and serves the interests of the party sharing the information. For example, if you are looking for potential investors and you have them sign an NDA, it ensures that they will not reveal your sensitive information, which also protects their own interests if they decide to invest in your business. 

Mutual NDA

In this type of agreement, both parties agree not to share each other’s information. It’s used when two businesses need to exchange confidential information, like during contract negotiations or when they are doing business together. With a mutual NDA, both sides are bound to keep each other’s information confidential. It creates a fair and balanced approach to protecting sensitive data for both parties involved. 

It may be preferrable to have a mutual NDA so that you have a higher chance of it being executed if the obligations are mutual (and not just a one-sided affair), especially if both parties are going to want to talk about confidential matters.

You have got a better chance of a NDA being executed if it has done two-way as opposed to one-way, but obviously you need to be prepared to have the same obligations. As in, it is a double-edged sword.  

What are the requirements for a Non-Disclosure Agreement? 

NDAs often vary depending on the situation. Typically, there are six major considerations typically covered in an NDA, however, the form of each agreement will differ depending on the circumstances: 

1. Participants

An NDA starts by clearly identifying the parties involved. It is important to specify who is disclosing the sensitive information and who is receiving it. This can be an individual person, a specific company, or representatives of the company. If the company has a complex structure, they need to determine which legal entity owns the information and include it in the agreement. 

Identifying the parties to the NDA will depend on the facts of the agreement itself. For example, in some circumstances, the NDA may also need to cover the advisers of the recipient or related parties, such as the recipient’s subsidiary or holding company. 

2. Definition of confidential information

This part can be a bit tricky. The NDA should clearly state what information is considered confidential. It is not safe to assume that everyone knows what is proprietary. So, it is the company’s responsibility to specify what information must be kept secret and not shared. This can include trade secrets, intellectual property like patents or copyrights, financial data, customer details, or even research and development information. The definition of confidential information should be sufficient broad to cover all information that may be disclosed, but not vague enough that it is not clear what information the parties intended to be confidential. 

3. Permitted purpose

A NDA should make express reference to the permitted purpose for which the confidential information is being disclosed. By clearly outlining the permitted purpose, both parties are provided with a clearer context of the nature of the recipient’s obligations under the NDA.  

4. Exclusions of confidentiality

Sometimes, it’s easier to define what is not confidential rather than trying to list every piece of sensitive information. In these cases, a company states that all information shared with the external party is confidential except for specific items they list as exceptions. This helps ensure that any information not explicitly mentioned remains confidential. 

5. Appropriate uses of information

There may be instances where a company does not consider any information as confidential, but they still want to control how the receiving party uses that information. For example, they might disclose their operating processes but prohibit the other party from sharing it with competitors or using it for personal financial gain. This way, the information is not deemed confidential, but there are still restrictions on its usage. 

6. Time period

Sometimes, the sensitivity of information decreases over time. Think about technologies that were once groundbreaking but are now widely known or replicated. In such cases, companies often define a period of time in the NDA. They specify when the information will no longer be considered confidential, acknowledging that its value diminishes over time. 

7. Other provisions

NDAs can include additional provisions based on specific needs or industry requirements. Different industries and situations may have their own unique provisions to address specific concerns. 

Exclusions from confidentiality treatment 

In every NDA, there are certain exceptions or exclusions that specify when the receiving party is not obligated to keep the information confidential. These exclusions are important because there are situations where it would not be fair or practical for the receiving party to be bound by confidentiality. 

Here are some common exclusions you will often find in an NDA: 

Information already known to the recipient

If the receiving party already has knowledge of the information before entering the NDA, they may not be required to treat it as confidential. It makes sense since they did not acquire the information from the disclosing party. 

Publicly known information

If the information is already publicly available and the recipient did not wrongfully make it public, they may not be obligated to keep it confidential. The idea is that if something is already out in the open, there is no need for the recipient to maintain secrecy as that information is not confidential. 

Independent development

If the recipient independently develops the same information without using or referencing the confidential information disclosed by the other party, they are not bound by confidentiality. This recognises that sometimes ideas or developments can occur separately and coincidentally. 

Information received from third parties

If the recipient receives the same information from another party who is not under any confidentiality obligations, they may not have to keep it confidential. It is reasonable because the recipient did not obtain the information directly from the disclosing party. 

Additionally, the NDA can address situations where the recipient is legally compelled to disclose the information. In such cases, the recipient should be allowed to do so without breaching the NDA, provided they give prior notice to the disclosing party about the legal proceedings. This ensures that if a court orders the disclosure, the recipient is not in violation of the agreement. 

These exclusions provide flexibility and fairness within the NDA, acknowledging that there are circumstances where the information does not need to be treated as confidential. It is important to have these provisions in place to protect both parties and maintain a balanced approach to confidentiality. 

Is a Non-Disclosure Agreement enough to protect myself? 

To ensure the utmost protection of your confidential information, there are some additional steps you can take: 

Operate on a need-to-know basis

One effective approach is to limit access to sensitive information only to those who truly need it. By implementing a need-to-know policy, you minimise the chances of unauthorised individuals accessing or sharing confidential data. 

Establish information security policies

It is crucial to have clear policies and guidelines in place that outline how confidential information should be handled, stored, and shared within your organisation. These policies can address data classification, encryption measures, secure communication channels, and proper disposal of sensitive materials. 

Physical protection of information

Do not underestimate the importance of physical security measures. Simple actions like locking doors, cabinets, and filing cabinets can go a long way in safeguarding your confidential documents and assets. Restricting access to areas where sensitive information is stored can help prevent unauthorised physical access. 

Mitigate accidental disclosures

Despite your best efforts, accidental disclosures can still occur. For instance, a data breach might expose confidential information to unauthorised parties. To minimise the impact of such incidents, it is crucial to have incident response plans in place. These plans should outline steps to be taken in the event of a breach, including notifying affected parties, conducting investigations, and implementing remedial actions. 

Keep information and security systems updated

Regularly updating your information systems, software, and security measures is vital to stay ahead of potential threats. Patching vulnerabilities, updating antivirus software, and staying informed about the latest security practices are all essential steps in maintaining the integrity and confidentiality of your information. 

How Much Does a NDA Cost?

Non Disclosure Agreement Price – Request your NDA

We charge a fixed fee $750 + GST for a tailored NDA.

NDA FAQs

“The team at Progressive Legal really takes the time to understand their clients business and needs. We consider the crew an asset to our business.”

Julian Haines, Founder at The Bucks Co.