An NDA ( aka Non Disclosure Agreement, or Confidentiality Agreement) is a legal contract, which should be used when sensitive information needs to be shared between two parties. It’s primary purpose is to make sure a party who gains access to sensitive information doesn’t disclose it to a third party. NDA’s are often used to protect confidential information and trade secrets, but can also be written to protect other forms of intellectual property.
When you decide you want to business with another party, one or both of the parties start exchanging “confidential” information about their respective businesses and the proposed transaction.
Before you start exchanging any sensitive information, it is imperative that there is a suitable NDA in place. Without a formal contract, you will be relying on the common law protections, which can be hard to prove.
The two common scenarios below demonstrate the importance of having an NDA.
Scenario 1: We have already started discussions. Do we really need an NDA?
It is advisable to stop exchanging any confidential information until the parties have signed an NDA.
Why? Because without an NDA, you need to demonstrate the other party was aware that the information exchanged was confidential. This can be difficult to prove, and most often no specific notice is given as to the sensitive nature of the information.
In legal terms, the common law (that is, judge-made law derived from court cases) offers protection for confidential information, so far as a person who has received information in confidence cannot take unfair advantage of it. However, to be protected by this common law, that information must have the “necessary quality of confidence” and must be disclosed in “circumstances” importing an obligation of confidence. A party seeking the protection of the common law would therefore need to prove both those elements in a court, which can be difficult.
Therefore, the best way of protecting your confidential information is through a formal NDA, as it provides more certainty than having to rely on a claim under the common law.
Scenario 2: We already have an NDA in place for a previous deal. Do we need to sign a new one?
That depends.
You should check the existing NDA to ensure that:
• The scope and the definition of the information to be disclosed is appropriate for the current transaction.
• The term is still valid. Most NDAs for commercial agreements are stated to be valid for a specific length of time; anything from two to five years is fairly common.
If either of the above does not suit the transaction, it is advisable to sign a new NDA. If the wording is unclear to you, or you have doubts about the validity and scope of an existing NDA, give us a call and we can discuss.
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