1. Management
  2. 3 Mar
  3. 5 min read

What is an NDA and why you should know about it

With information technology constantly evolving, the issue of protecting information is becoming more and more relevant. And when it is of commercial value, it is one of the most important.
Data leaks can cause serious losses for a business, so companies are taking all measures to protect it. For example, they sign non-disclosure agreements with their employees, partners and business owners. Let’s talk about the contract, drafting mistakes, and why do you need to sign a Non-Disclosure Agreement.

What is an NDA and why you should know about it

The value of information has exceeded the value of material objects, and even more in the field of information technology. That is why one of the most effective ways to take control of information security is the Non-Disclosure Agreement (NDA). 

The agreement will help reduce the risks of information leaks, and it will cement the receiving party’s obligation to keep the information secret. As a result, a nondisclosure agreement becomes an effective tool for protecting valuable information.

NDA is

NDA stands for Non-Disclosure Agreement. This is an agreement that the parties sign to restrict access to information related to the services provided or work performed under the contract. The agreement prevents leakage of any confidential information: from trade secrets to personal data.

Trade secrets include information hidden from the public. For example, customer or supplier databases, software codes, marketing strategies, personal data of employees, etc. The use of this type of information can benefit the company’s competitors.

NDA types

  • Unilateral NDA. In such situations, one party entrusts certain information to the other party so that it remains private to third parties. 
  • Bilateral NDA (a mutual NDA or a two-way NDA). In this case, both parties share confidential information that will not be available to third parties. 

The main purpose of an NDA is to compensate the guilty party for the disclosure. In the event of publicity, the contract serves as the legal basis for a claim for damages.

Conclude an NDA when:

Business owners often have to discuss new business opportunities, look for potential partners or hire new employees. And to do this, they often have to discuss confidential information with outsiders. Non-disclosure agreements have therefore become the legal basis for maintaining the trust and preventing information leaks. For instance, common and important cases of concluding an NDA are:

  • presentation of a business idea, creation of a new project or development to an investor, partner, or distributor
  • production processes, go-to-market strategies, design files, etc., which contains the execution plan
  • starting negotiations in the conclusion of a major transaction or sale of a business
  • providing financial, marketing, and other business information to professional consultants
  • presenting a new product or technology to a potential customer
  • hiring a contractor to develop, promote a product or other services if important company information will be available to him or her
  • company employees who have access to confidential information, especially when working on new projects
  • software development

Mistakes in making an NDA

If a contract is not properly written, there may be consequences in the form of a violation of the NDA, ignoring it, or the use of confidential information by third parties. For example, any employee who has a grudge against the company can easily violate the confidentiality of information. Then what is the reason?

  • a too short or too long agreement without territorial or temporal limitations
  • the contract is based on vague phrases like “disputes are resolved under the procedure established by law,” which indicates that the document is formulaic and does not spell out the applicable law in case of disputes
  • the subject of trade secrets is not disclosed in detail, since the NDA generally does not specify what exactly is the confidential information
  • no clause about what is not a disclosure of confidential information and how information is transmitted within the company
  • Lack of clear terms of NDA validity and confidential information storage terms after NDA termination

How to make an NDA

  • First, it is necessary to identify the owner of confidential data, since the contract is concluded on his behalf. The contract must be concluded precisely by the right holder, otherwise, it will have no legal effect
  • It is necessary to clarify what constitutes information disclosure. For example, selling the data, giving it to third parties, and so on
  • It is better to conclude an NDA with outsourced employees who have access to important information for the company
  • It is worth defining at once the ways of transferring confidential information
  • Also, define a list of confidential information and that this data is the property of the company-owner, and indicate that the information is transmitted only for business purposes
  • It must be specified that the recipient of the data must take all measures to protect it
  • It is appropriate to set the term of the NDA so that even after the termination of cooperation the data will be confidential
  • And it is desirable to specify the sanctions for violation of the nondisclosure agreement

So why do you need to sign a Non-Disclosure Agreement?

For the contract to be legally effective, it is necessary to introduce a trade secret regime in the company and inform everyone with access to confidential data about it in writing form. In IT, data security comes first, so there is a need for a confidentiality agreement. 

A company can sign a contract with employees, partners who receive sensitive data, employees on outsourcing, etc.

NDA allows:

Fix arrangements for the disposition of information. The contract specifies a list of valuable information and defines the rules for its delivery, disclosure, and return to the transmitting party or deletion at the end of the cooperation.

The agreement provides legal grounds for recourse and recovery of damages. Without an NDA, you can’t go to court and protect your interests. And it also provides the party disclosing the data with a sense of security about the responsible handling of the information provided.

An important feature is that under a non-disclosure agreement, the parties do not have the right to disclose confidential information. This does not affect the right of the parties to disclose information obtained from open public sources.

Conclusion

NDA formation is a method of protecting confidential information for a business. The agreement will help keep trade secrets, unique ideas, and concepts confidential. And if someone violates the contract, they will have to pay damages as a breach of confidentiality.

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