Non-disclosure agreements (NDAs) are widely used to protect and regulate confidential information and are arguably the most common type of legal agreement entered into. However, their effectiveness is often debated.
Christina Donos, a solicitor in the corporate law team at Blacks Solicitors, shares her insight and advice for those considering entering NDAs and highlights the key aspects to be mindful of.
What is an NDA?
NDAs are contracts between parties that regulate access to confidential information and define what is considered “confidential”. They aim to prevent sensitive information from being shared with competitors or third parties.
Commonly used to facilitate transactions such as business sales or product licensing, NDAs can either be:
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Unilateral: where one party shares confidential information, and the other keeps it confidential; or
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Mutual: where both parties share and protect each other’s confidential information
Properly drafted and executed NDAs are enforceable and help protect business information and trade secrets from unauthorised use1.
The effectiveness and controversy of NDAs
NDAs legally bind the recipient to specific terms relating to how confidential information can be used and disclosed, effectively creating a relationship of trust and confidence between the parties. However, the effectiveness of NDAs is debated, as proving a breach can be challenging and costly.
While it is difficult to establish a breach, if the disclosing party can demonstrate that the recipient profited from the misuse of information, they may be able to claim on account of profits.
Legal standards and enforcement
Without an NDA in place, a ‘duty of confidentiality’ may still exist, but proving it is much more difficult. The disclosing party must show that the confidential information was not public and was given under circumstances implying confidentiality. This means proving the recipient should have known the information was confidential.
An NDA simplifies this process by explicitly defining the confidential nature of the information and the obligations of the recipient, providing greater assurance and legal standing for the disclosing party.
Optimising NDA effectiveness
For maximum benefit, NDAs should be tailored to specific circumstances, and clearly define the scope of what is to be considered “confidential information”. The agreement should specify permissible uses of the information to prevent misuse for competitive advantage.
A balance in restrictions is crucial, as overly strict terms may hinder objectives, while too lenient terms risk unwanted disclosures. Disclosing parties must also maintain confidentiality themselves, as courts may not enforce NDAs if the disclosing party fails to do so.
Importance of NDAs
While NDAs do not guarantee the prevention of misuse of confidential information, they are widely recognised as good business practice. NDAs initiate engagements by focusing parties on confidential information. They reassure the disclosing party that they are in control of the information and ensure its return or destruction once the engagement is over.
Implementing NDAs with clear procedures helps prevent unauthorised disclosure, and provides a safety net for potential claims for breach of confidentiality in the future.
Finally, when you’re considering entering an NDA, it’s advisable to instruct a solicitor with plenty of specialist knowledge and experience to ensure the process runs smoothly and is completed successfully.
Image: Provided by Lucky North.
