Know the Basics: What is a Non-Disclosure Agreement?

Read on as we'll answer all your questions about what are NDAs and how to use them so that you can decide whether one is right for your business needs.
NDA (Non Disclosure Agreement)

If you're reading this article, you've likely heard about the importance of a non-disclosure agreement (NDA). You might have wondered if these contracts are something you need to protect yourself and your interests. In this guide, we'll answer all your questions about NDAs so that you can decide whether one is right for your business needs.

A non-disclosure agreement is often seen as a tedious legal document. But it they doesn't have to be! In fact, an NDA can be fascinating if you know where to look. 

For starters, did you know that NDAs have been around for centuries? The ancient Romans used them to protect trade secrets, and even Leonardo da Vinci signed one to keep his inventions under wraps.

NDAs have also been at the center of some pretty juicy scandals. In 2006, for example, a former employee of Coca-Cola was sentenced to prison for leaking trade secrets to Pepsi after signing an NDA. And in 2009, a group of former employees of Google and Intel was sued for allegedly sharing confidential information with one another in violation of their NDAs.

But NDAs aren't just for big businesses and corporate espionage. In fact, they can be handy for everyday people too. For example, an NDA can protect your ideas from being stolen if you're working on a secret project with a friend. Or, if you're planning a surprise party for a loved one, an NDA can keep the person safe.

So what is an NDA?

We’ve all asked at some point this question: what is an NDA? A Non-disclosure Agreement (NDA) is a contract that prevents someone from disclosing confidential information. It’s like a “secret-keeper” contract ensuring the data stays safe. For this reason, it can be straightforward or include complex clauses and provisions. For example, an NDA might only require the disclosure of confidential information to one party while allowing the other party to freely use the disclosed information. 

An effective NDA will be tailored to suit your business needs, but if you're starting out and need a template, we have one that you might want to use. 

Why do you need an NDA, and when should you use one?

NDAs should be used whenever sensitive or confidential information is being shared. This can help protect the interests of the person or entity that owns the information and can help prevent misunderstandings or disputes about the disclosure of the data. 

  • An NDA, or non-disclosure agreement, is a legal contract used to protect confidential information.
  • NDAs are often used in business situations. We need an NDA when one party wants to share sensitive information with another party but wants to ensure that the data is not shared with anyone else.
  • NDAs can be used in various situations but are often used when a company considers entering into a business relationship with another party. We might need an NDA when the other party wants to share information about its business operations, products, or services.
  • NDAs should be used whenever confidential information is being shared with another party.
  • NDAs are not a substitute for other forms of legal protection, such as patents, trademarks, or copyrights. These different forms of protection may be necessary in addition to an NDA to fully protect a company's confidential information.
What information is covered by an NDA?

An NDA covers any information that is not publicly available and has value to the recipient. This includes:

  • Confidential information is information defined by federal law as "property" of the disclosing party. Under the law, this includes trade secrets (i.e., any commercially valuable plan, formula, process, or device). Still, it also has other types of sensitive data that are not necessarily secret (e.g., financial information). An NDA may protect against disclosure of some confidential information even if it isn't a trade secret.
  • Trade secrets include all non-publicly available proprietary business plans, processes, and technical know-how. These often fall under a company's internal restrictions on access and use by employees only.
  • Proprietary business plans include designs for products or services, often under a company's internal rules on access and use by employees only.
  • Financials refer to accounting records containing specific financial data such as sales figures or pricing structures.
Who can sign an NDA?

We can sign an NDA with anyone, including ourselves. In fact, we may want to do that if we're working on something confidential and don't want to share it with any other people.

If someone else is involved in the agreement, they'll also need to sign it. Suppose we're signing an NDA with a company. In that case, we have to make sure there's someone with the authority to sign. The same goes for signing NDAs with individuals—they need to be authorized by their employer or organization, if possible, before signing anything on their behalf.

Suppose multiple parties are involved in deciding what information should remain confidential. In that case, each one has an equal say in whether or not they want those details kept secret from everyone else involved in creating them together. However, this also means they are only allowed access with everyone else's approval first!

What happens if you break an NDA?

There are legal consequences if you violate the terms of a non-disclosure agreement. If someone breaches their NDA, they could be sued by the other party for damages. The amount of money awarded to them would depend on how severe their violation was and how many people had been exposed to it.

However, as we mentioned above, NDAs aren't legally binding if no money is exchanged or services are rendered in exchange for them. Such as in cases where two people are entering into an employment contract.

Can you have a non-disclosure agreement with yourself?

As long as we understand that there are a few exceptions when we want to enforce a non-disclosure agreement with ourselves or a spouse, we can do it. However, having an NDA with our spouse or partner will likely only work if they can enforce it independently. If they want to implement it, they'll need help from either the court system (which is expensive) or someone else who has power over them, such as their employer.

You might wonder what happens if you're the only person involved in a project or if two people are working together on a joint venture. In that case, there's no need for a non-disclosure agreement. However, you can still use this document to control how information is shared and ensure confidentiality. If all parties agree with its terms and sign before sharing information, they have an NDA.

Cristi Fonea
June 17, 2024

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