A friend of mine called me and told me of this brilliant idea that he had and, being the ambitious guy that he is, how he decided to present his idea to a multinational company to help bankroll its execution. He told me the multinational company gave excuses as to why they couldn’t fund the project, only to discover months later that the multinational company executed the idea under their own name!
He had been sidelined! He felt cheated and he wanted recourse. He wanted to know what course of action was available to him. The first question I asked him after he had narrated all was ‘Was there a Non-Disclosure Agreement?’
A Non-Disclosure Agreement (also known as a Confidentiality Agreement) is a legal contract between at least two parties outlining confidential material, information, or knowledge that both parties wish to share with each other but also wish to restrict the access of such information from third parties. In other words, both parties agree, by contract, to keep whatever confidential information shared between them in the course of their relationship a secret and not disclose that information to third parties except in certain accepted circumstances set out in the NDA. It is a contract through which the parties agree not to disclose information covered by the agreement.
It should be noted, however, that an NDA not only covers the exposure of sensitive information to a third party but may also cover situations where one of the parties uses confidential information for his own gain to the detriment of the other party.
There are many reasons and advantages to having an NDA. Some of these are:
• It is Legally Binding on Parties – The information or material to be protected is expressly stated in the Agreement. Once signed, each party is guaranteed that the other party is bound by law not to disclose, divulge, or use material provided or shared, a breach of which will have penalties. Whoever defaults (by divulging or using the information) would be liable to compensate the other party for the breach. The party who has been put at a disadvantage can even go ahead and seek damages (compensation) or an injunction (an order from the court restraining the continued use of the information).
• It Clearly States What Information Should Be Kept Confidential – The Agreement answers the following questions: What information is deemed ‘confidential’? Would restricting all of the information jeopardize the successful implementation of the project? An NDA allows parties to clarify their confidentiality obligations, agree on when those obligations do not apply and agree on their obligations from the termination of the NDA.
• It Can Include Provisions on the Consequences of Breaching the Terms of the Agreement – The NDA can include terms specifying what the consequences of parties breaching their obligations under the Agreement will be.
• An NDA Can Still Be Enforceable After the Expiration of the Project – In certain circumstances, parties may require certain information shared be kept confidential even after the expiration or completion of the project. In such situations, the NDA can specify this and be enforced against the defaulting party even after parties have concluded the project.
• An NDA Guarantees Protection of a Party’s Confidential Information – A court is unlikely to protect as confidential a trade secret, document or information that the owner of that confidential information has failed to protect by entering into an NDA. The courts would be more likely to grant relief to an owner of confidential information in circumstances where the owner has attempted to protect that information from being disclosed.
The importance of NDA’s, particularly in today’s business world, cannot be overemphasized. It may be difficult to protect your ideas, however, a Non-Disclosure Agreement is a low-cost yet effective approach to doing just that.