WHAT IS A NON-DISCLOSURE AGREEMENT?
By: Joshua Hancock, Law Clerk, Dorman Bell, LLP
Nearly all companies have valuable confidential information and that confidential information is a powerful asset. In order to protect this asset, businesses often use non-disclosure agreements. A non-disclosure agreement (NDA) is a legally binding contract between two or more parties which symbolizes a confidential relationship between the parties. The agreement protects proprietary business information by preventing recipients from disclosing the information to others. An NDA is generally used to protect items like:
- Marketing Plans.
- Intellectual Property
- Computer Technology.
- Business Operations
- Accounting Records
- List of both current and potential customers
An NDA is also sometimes called a confidentiality agreement, confidential disclosure agreement, proprietary information agreement, or secrecy agreement.
REASONS TO CONSIDER USING AN NDA
A mutual NDA often arises when two or more companies are about to enter into a business relationship. A mutual NDA cuts both ways by restricting all of the parties from releasing confidential information to any third party. Companies routinely share, receive, and exchange sensitive information with and from customers, suppliers, and other parties in the ordinary course of business. A mutual NDA ensures that proprietary information can be used and shared more effectively and securely to the greater benefit of the businesses.
A unilateral NDA is the most common kind of NDA and often arises between employer and employee. A unilateral NDA restricts only the recipient from sharing the confidential information. For example, an employee may be asked to sign an NDA if the employee has access to sensitive information about the company. An applicant during an upper management-job interview may be asked to sign an NDA because it’s difficult to hire a high-level executive without revealing proprietary information.
An NDA also sometimes arises when a company is seeking financial backing. For example, if a company is searching for a new investor, the investor may require the company to disclose items like the company’s market-strategy plan, sales plan, list of potential customers, manufacturing process, or proprietary software.
Similarly, if a business wants to improve efficiency and hires an outside consulting firm, an NDA is generally used so the consultant may fully analyze all aspects of operations without compromising sensitive information.
In Texas. if an NDA is breached by one party, the other party may seek both injunctive relief from the court to prevent any further disclosures and may also sue the disclosing party for monetary damages.
Simply put, an NDA prevents the disclosure of a company’s confidential information and trade secrets. Businesses need protection. Any law firm that specializes in intellectual property law can draft specific types of NDAs tailored to each company’s particular circumstances. Not using an NDA leaves a business vulnerable and without legal remedy.