Non-Disclosure Agreements are agreements used between parties to secure the confidentiality of information exchanged between the parties. They are also known as confidentiality agreements or NDAs.
NDAs provide several important functions. Inventors frequently use NDAs to protect their inventions before a patent application, but they can be used by non-inventors and entrepreneurs as well. A non-disclosure agreement obligates the receiving party to keep information confidential, and thus can be used anytime you are disclosing sensitive or private information that you don’t want released to third parties.
In the patent context, non disclosure agreements are particularly helpful. US and foreign laws differ with respect to the effect a public disclosure has. In the US, generally, once a disclosure is made, you have one year to file a patent application. After that year, your invention cannot be patented and is instead considered to be dedicated to the public domain.
Effect of Disclosures outside the US
Most of the other countries in the world have an absolute novelty requirement, where any disclosure before a patent application is filed automatically extinguishes any rights you have in your patent. This is a harsh law, and there are some important country exceptions, but because so much is affected by a pre-filing disclosure, it is important to consult an attorney before making a disclosure. Non-disclosure agreements can often times turn an otherwise patent-barring disclosure into an acceptable business transaction.
Non-disclosure agreements are also important in the US because they provide teeth to an informal agreement between parties. Although few people want to enforce an NDA with a lawsuit, the agreement nevertheless can provide some leverage if the recipient of the information discloses in violation of the agreement.
Non-disclosure agreements can also be helpful in maintaining the secretive nature of trade secrets. Trade secrets are a form of intellectual property that carry rights only so long as they are protected. If a company fails to adequately and properly erect protective measures around their trade secrets, then the secret can possibly be revealed without consequence. A non-disclosure agreement is a relatively cheap and easy way to help protect a trade secret.
Benefits of Non-Disclosure Agreements
There are many situations in which an NDA is helpful. Some of those include situations where:
- you are an inventor and are shopping around for potential prototypers or manufacturers
- you are starting a business and you don’t want your developing business plan to be known
- your business uses a unique operation that you consider a trade secret and don’t want employees to talk about
- you are involved in the purchase of a company, you need to give the other company information to understand and evaluate your business, but you are worried what will happen if the deal doesn’t go through
- you have an employee that is leaving your company and you want to make sure your information stays with you
- you have a distributorship agreement with another party and you don’t want them to disclose information about your business to anyone, especially competitors
Non-disclosure agreements can take many forms. They can be unilateral or they can impose dual obligations of secrecy on both sides of the agreement. They must define the confidential information with precision, and may carve out information that should not be included within that definition. Confidentiality agreements can limit how information is used, for what purposes, with whose consent, for a length of time, with what consequences, and how long the agreement itself should last. Confidentiality agreements are often written together with ownership or assignment agreements, or with non-compete agreements, and should thus be tailored in concert with those agreements so that they work together to achieve one purpose.