Nondisclosure Agreements
Learn about nondisclosure, or confidentiality, agreements -- the best way for a business to protect its trade secrets.
A nondisclosure agreement -- also called an NDA or a confidentiality agreement -- is a contract in which the parties promise to protect the confidentiality of secret information that is disclosed during employment or another type of business transaction.
The use of nondisclosure agreements is widespread in the high-tech field, particularly for Internet and computer companies.
Example: Sabeer Bhatia, founder of Hotmail, collected over 400 NDAs from employees, friends and roommates. He believes that his secrecy efforts gave him a crucial six-month lead on the competition. He eventually sold Hotmail to Microsoft for a reported $400 million in stock.
If you have a nondisclosure agreement with someone who uses your secret without authorization, you can ask that a court order the violator from making any further disclosures. You can also sue for damages.
Create a Confidential Relationship
The purpose of an NDA is to create a confidential relationship between the person who has a trade secret and the person to whom the secret is disclosed. People who have such a confidential relationship are legally bound to keep the information a secret.
An NDA is not the only way to create a confidential relationship. You can create a confidential relationship with an oral agreement or it can be implied from the conduct of the parties. However, these relationships are much more difficult to prove than a relationship based on a written agreement.
NDAs are often categorized as either "mutual" or "one-way." A mutual NDA is one in which both parties are exchanging confidential information -- for example, you provide secret information for a company to evaluate and they provide you with secret information about their marketing strategy. A one-way agreement is used when only one party is making a disclosure -- for example, when you explain your secret to a contractor or investor.
Protect Trade Secrets
Use of a nondisclosure agreement is one of the best ways to protect trade secrets -- that is, any information that is not generally known and gives your business a competitive advantage in the marketplace. For example, through a nondisclosure agreement, you can prohibit someone from disclosing a secret invention design, an idea for a new website, or confidential material contained in a copyrighted software program.
To learn more about the essentials of trade secret law, including what you can protect, see Nolo's Trade Secret Basics FAQ.
Elements of a Nondisclosure Agreement
There are five important elements in a nondisclosure agreement:
- definition of confidential information
- exclusions from confidential information
- obligations of receiving party
- time periods, and
- miscellaneous provisions.
|
