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If confidentiality is to be covered in a contract for a project or commercial arrangement, a non-disclosure agreement (NDA) will be needed in most cases. See below for more information.
Parties wanting to enter into a project or a commercial relationship of a supplier-customer, principal-agent, joint venture, partnership or other commercial kind will need to share information and enter into discussions and negotiations before they evaluate, prepare, sign and date a legally binding formal contract for the project or commercial arrangement.
Between the discussions/negotiations and the formal contract there may also be an interim stage where core commercial terms are recorded in outline/summarised form in a “memorandum of understanding” (MoU) or “heads of terms” (HoTs) which is then used to prepare the detail for the legally binding formal contract.
It could therefore be a long time, often weeks or months, between initial contact and the legally binding formal contract for the project or commercial arrangement being put in place, if at all.
Accordingly, as sensitive commercial information may get shared deliberately or inadvertently during such discussions/negotiations, an NDA at the start can be a useful tool to help protect the business from bad faith activity: e.g. snooping on a rival or seeking to gain know-how or a commercial advantage/benefit without paying for it.
On the other hand if no commercially sensitive information is to be shared during negotiations (which is rare) and the parties go straight into a legally binding formal contract for a project or commercial arrangement that covers issues like confidentiality, an NDA may not be necessary.
Check that the right parties are listed in the NDA and that their details match those in the signature clauses. If you are dealing with a group of companies, then you need to ensure that each company in the group is listed or, if only one company is listed, that it is the correct one. You should also make sure that the company numbers and registered office addresses are included so that it is easy to identify the right company.
Where highly sensitive information is being shared, you might want to insist that the individuals who actually sign the agreement are also included as parties so that they are personally bound by its terms.
The first thing to be clear on is that there is no material difference between an NDA and a confidentiality agreement: these are just two different phrases which are used to describe the same thing.
Before entering into an NDA, you should decide what information it needs to cover. It could, for example, protect only information that is recorded in writing and marked as ‘confidential’, or it could protect the information that you share in meetings or presentations.
A good NDA restricts the use of the ideas and information to a specific permitted purpose (for example, the discussion of a potential project) and you should specify the purpose as precisely as you can.
Does the NDA work to protect both parties’ confidential information or only that of one party? More often than not, the NDA should protect both parties equally. However, in situations where only one party is disclosing sensitive information, a ‘one-way’ agreement may be more appropriate. An example of this would be the disclosure of a trade secret by one party to another.
When looking at the definition of confidential information, consider whether the relevant information is covered. The information does not need to be top secret for it to be covered under the definition of confidential information.
It is up to you to decide what information is confidential to your organisation and ensure that it is appropriately protected under the NDA, but you should avoid trying to cover anything which is already in the public domain. Confidential information can be classed as email chains and letter correspondence, oral discussions, trade secrets or the contents of documents and agreements.
Confidential obligations under the NDA can be set to a specific time period or can be indefinite.
You need to consider whether the protection provided by the agreement is long enough to protect the nature of your confidential information. Try to imagine the point at which you would be happy for the information to be in the public domain and then make sure that the NDA, as a minimum, covers you up until that point.
The NDA should identify who the information may be disclosed to and under what terms. For example, your employees and sub-contractors may be entitled to see the information, but only under conditions of confidentiality that mirror the obligations within the NDA.
Information disclosed under an NDA or negotiations or information sharing covered by the NDA may include personal data (as defined under the Data Protection Act 2018/UK GDPR). If it is, a data processing clause should be included to ensure personal data is not disclosed or otherwise used illegally.
You should check the terms of the NDA carefully to ensure that no provision within it requires your organisation to enter into a further contract with the other party.
You should also make sure that there are no other contractual obligations (such as payment terms or delivery terms) within the NDA. If the parties agree to form a contract, discussions should be summarised in an MoU or HoTs document, followed by a fully-fledged legally binding formal contract.
For more information on MoUs please see our article here.
For more information of HoTs please see our Heads of terms template and guidance here.
NDAs often contain a provision requiring that the disclosee protects the confidential information of the discloser “with the same degree of care that the disclosee takes to protect its own confidential information”. However, the practices and processes of many businesses in relation to information security are less than ideal, so this is not a good measure of protection.
Alternatively, consider including an obligation on the parties to put in place adequate security measures to protect the unlawful disclosure or loss of, or theft or damage to, the information.
An NDA should not dictate intellectual property ownership, other than to state that each party will retain the ownership they had prior to signing the agreement.
Although deciding who might own intellectual property that arises from a project is something for the main agreement itself, NDAs may include a clause which either purports to transfer intellectual property from one party to the other or gives one party (rather than the other) ownership of intellectual property. If such a clause is included in your NDA, you should query it and only agree to it after taking legal advice.
We advise that you should always use an NDA when entering into commercially sensitive discussions and you should have your own precedent document that you can use and you are happy with. If this is drafted on a fair and balanced basis then it sets a good standard for the negotiations and should be easily accepted by whoever you wish to negotiate with.
If, however, you are presented with an NDA to review, we recommend that if you do identify anything which you consider to be out of the ordinary or which requires further clarification. We would advise you to get in touch directly before signing the document.
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