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Assessing your Non Disclosure Agreement

By Edited Nov 13, 2013 0 0

How to make sure your non disclosure agreement is legally binding.

You've probably asked your lawyer to draft you a Non Disclosure agreement at some point or another.  It is a species of contract that can go by other names - confidentiality agreements, secrecy agreements, and the sort. The main purpose of these kinds of contracts is to restrict the access to certain sensitive information from the general public.  You might have a business interest in keeping your information secret, or perhaps it may be due to an academic or creative reason.  All told, non disclosure agreements can be used in practically any instance when secrecy is of vital importance.

How would you assess the effectiveness of the contract you have before you?  You would, of course, wish to make sure that it contains all the necessary terms that you need, and also that it is legally binding.  It might be interesting to note here that personal contracts such as these, as long as they do not violate any laws, and as long as they were signed voluntarily by the parties, are valid anywhere in the world.  This means that as long as you observe basic principles of fair play in entering into a non-disclosure contract with another person, you can reasonably be assured that the contract will be held to bind the parties anywhere in the world.

So what terms should you check for in your contract?

The Definition of what is Confidential

While some would advocate a general and broad enumeration of what is "confidential" - i.e., any information the individual learns during the period of the contract, or some similar phrase, you might want to think about greater precision.  This helps avoid confusion later on, and prevents the other party from raising his ignorance that what he divulged was actually confidential.

Hence, any technological, scientific, creative, academic, musical, business or financial information or skill learned during the period specified might be mentioned, right after the part where you define the nature of your contractual relations.  For instance, the contracting parties are entering into an employer-employee relationship within the context of the employer's technological business or company.  Any information revealed during the course of the employment, which directly affects the operations, management, internal processes and future plans of the company would be considered confidential information, such as business plans, employee relations, financial status, strategies and internally-taught skills and knowledge.

You can actually include just about anything you want, as long as the information is not already one of general public knowledge.  Confidentiality agreements are especially useful for protecting information that does not quite meet with intellectual property classifications or requirements for registration, such as patents or copyrights, but which are, nonetheless, crucial for you to keep secret.  You might also wish to include an all-encompassing statement towards the end, such as "and any other information disclosed which is considered confidential," just to make sure that you cover everything.

The Term of the Contract

How long should the secrecy be kept?  There aren't usually any legal rules on this, which means that you can make the confidentiality effective for the rest of your lifetime until your death.  Though some reasonableness might be called for.  It is usual to specify a term which would not unduly scare away the other party - and yet protect your interests for the time that you need it.  Say, for instance, that your company is launching a new strategic venture into the market, and that it would take about a year for the implementation and execution, and the venture is generally projected to be good for the next five years.  Then you could specify a six year term for your non disclosure agreements.  Or you could simply say that it is for the reasonable period in which it is necessary for the confidential information to be kept secret, within the context of its possible use.

If, later on, you find your venture to be very effective, and can reasonably be expected to make its killing for yet another few years, then you could always draft a new or an amended non-disclosure agreement to be effective for a new term.

Exceptions or Permissible Disclosures

Secrets were made to be broken, as most people say.  Even the most protective NDA admits of exceptions or rules - for of what use are important information if you cannot make use of them?  Some of the general exceptions would include disclosures to persons (specified or otherwise) within the company, and those for whom express permission for disclosure has been granted by the other party.

The Nature of the Sharing

Even if, say, the information you are seeking to protect does not admit of intellectual property classification, and therefore is not one that can be classified as "property," you still have a right to protect it as if it were. And who knows, maybe later on, you might derive tangible property interest from your information.  Hence, it is standard to include a clause to the effect that you are not giving away, transferring, or permitting any license to transfer, any of your rights, monetary, proprietary or creative, by sharing the information.  This would generally deal with any later arguments that since you shared, you gave it away.  What you are creating is not a contract to sell or to donate anything that is important to you, but a fiduciary or trusting relationship which involves specific obligations and limitations.

The Obligations of the Parties

Apart from not disclosing to unauthorized persons and the terms already covered above, there is also the standard clause of making sure, to the best of one's ability, that the information is kept confidential.  This would address those sins of omission instances when a trusted person might not have intentionally violated confidentiality, but stood aside when somebody else did.  Hence, the parties are expected to exert reasonable efforts to protect or safeguard the information subject of the contract.  This creates responsibility on top of the restrictions.

Give your Contract Teeth

So your contract seems complete, but the question now remains - what do you do if the other party breaks it?  Some might advocate the insertion of liquidated damages, which is a provision in the contract specifying the amount of a person's liability for any breach. The usefulness of such provisions is that it simplifies the matter of proving damage - you don't have to show that you suffered this amount of damage and therefore have a right to claim it against the other person.  The other person is, in effect, agreeing that any breach on his part makes him liable for the specified amount, hence the only thing that needs to be proven is the validity of the contract and the fact of the breach.

It might be good to remember that any contract must exist within the parameters of a country's laws.  So, if a country has laws that prohibits or denies recognition to excessive liquidated damages, or contracts with infinite time periods, or even the protection of certain information, your contract will be the one to give.  Check the laws of the place where you are signing your contract just to make sure.


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