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Legal tipsFebruary 12, 2021

NDA 101: What is an NDA and how do you build secured non-disclosure agreements?

Protecting your data

Keeping the company secrets buried deep under the ground seems effective, but what must we do if sharing them is required to make those secrets profitable?

Keeping trade secrets and confidential information in order to have a competitive advantage is crucial for many companies. However, at some point even your most precious intel has to be shared: with an engineer that works on a project, with a client to whom you show the prototype, with the janitor cleaning up the negotiations room after you’re done passing papers around the table.

By the way, working with AXDRAFT does not require you to share any sensitive data with us—we gather only template data to automate your document workflow and even help your company go green.

To ensure protection of sensitive data, a Non-Disclosure Agreement (NDA) or, as it is sometimes called, a Confidentiality Agreement (CA) can be enforced.

What is an NDA? What does it help to do?

If the Ultimate Fighting Championship decided to create a megafight—confidentiality agreement vs NDA—they’d fail, because only one fighter would show up, since they are one and the same. Non-Disclosure Agreements are contracts that can be legally enforceable and are usually signed between a party that has sensitive information and a party that this information is being shared to. By signing the NDA contract, both parties agree not to disclose any of the information that will be shared between them.

An NDA contract is usually brought up, when confidential data has to be shared with suppliers, employees, investors - anyone who needs access to this information in order for you to go on with your plan. Signing this protective document establishes trust between parties, and keeps your intellectual property protected from theft or corruption. By the way, if it takes your lawyer over 30 minutes to draft a simple NDA, you may want to automate that process. Here are a few arguments for your lawyer to embrace document automation with zero friction—and also stay happy with their job.

“People have entrusted us with their most personal information. We owe them nothing less than the best protections that we can possibly provide.” Tim Cook

Nobody knows exactly who came up with an idea to create nda agreements. We know that the first mentions of such documents began popping up around the 1940s, where an NDA was brought up in regards to maritime law. NDA contracts started making more sense later, when they were noticed in upcoming tech giants like IBM.

Which businesses need an NDA? What kind of data needs to be protected?

Like IBM, other tech companies too devise their own proprietary algorithms, and operate other sensitive innovations they want to protect, even from their own employees who may prove to be disloyal. Startups seeking investors may fear that their idea can be stolen in exchange for minor investments. What other situations might require you to sign an NDA? Let’s go through a quick list:

  • Hiring employees that will be working with sensitive information
  • Sharing access to company operations with partner company
  • Political parties/ trading brokers needing to keep insider information inside
  • Inviting third party into business operations
  • Are you planning to hire an outside contractor to analyze your operations? Create NDA and make them sign it. A Non-Disclosure Agreement can even help you project the recipe of your specialty, if you don’t trust your sous-chef.

    Here are some examples of what an NDA can help you protect:

  • Patent rights. NDA agreement can protect the inventor in case of a pending invasion that can void patent rights.
  • Confidential intel. An NDA contract will legally oblige parties to protect such information. Leaking confidential intel will be considered as breach of nda.
  • List of clients and information about them. So that your sales manager won’t go to your competitor with it.
  • Business strategy. Avoid the risk of your partner working with someone else and use your perfect plan.
  • Interpersonal relationships at work. Everything that happens in the office, stays in the office.
  • Manufacturing processes. Now you know how Coca-cola’s recipe still hasn’t gone public!
  • Software code and development practices. This is the way to protect your code, as long as you don’t plan to publish it to open source.
  • Financial information (revenue, budgets, etc.).
  • In fact, almost every business that has trade secrets and fears sharing them can create nda contracts to feel protected. Of course nobody is safe from breaches of NDA, as in cases with the whistleblowers a couple years ago. But if we’re talking about business, the costs of such a breach of NDA can be way too huge for a party that signed it to even consider such a thing.

    Which data is NOT protected by an NDA?

    Of course, a publicly shared Facebook post, or the first name of your company’s CEO might not fall under protection by a Non-Disclosure Agreement. So what else might not be safe when an NDA is signed?

  • Company addresses, public records and SEC filings are not protected by NDA contract.
  • Depending on the language of the agreement, courts may have various interpretations of its scope. E.g. if one side can somehow prove that the confidential data has been acquired by them prior to, or outside of, signing the NDA agreement, negative judgement might be avoided.
  • Such a thing as a court-ordered subpoena may result in revealing the information that the NDA contract will not protect.
  • Types of NDAs

    Each NDA is unique, and will always refer to specific data under individual circumstances. However, every document that can be shown as an example when answering a simple question—what’s an NDA—falls under one of the two categories: Mutual NDA or Unilateral NDA.

    The difference is close to none (remember ‘confidentiality agreement vs nda’ fight?). A Unilateral Non-Disclosure Agreement states that one side obliges not to disclose information. While in the Mutual NDA both parties agree not to do so.

    So, in every aspect but the amount of responsible parties, all types of NDA contracts are identical, especially when it comes to the consequences of the breach of nda.

    What’s an NDA structure?

    As every document, every type of NDA contract must be clearly structured.

    For Non-Disclosure Agreements, it is important to answer the following questions:

  • What needs to be protected?
  • How should it be protected?
  • How long should the protection last?
  • Thus, NDA can be structured into three main components:

  • Definitions. This is where we define (duh) which information is covered by the document, and define actions that can be taken in regard to handling that information. Such a thing as Exclusions is also mentioned in this part. Exclusions identify parts of information that can have been shared prior to signing the NDA, or mention the commonly known data that does not fall under the protection of NDA contract.
  • Obligations. This is where you can get creative ;) Since an NDA agreement expects certain behavior from the signees, it should also include the part with consequences for those who deem it necessary to breach the NDA.
  • Timeframe. Nothing lasts forever, since forever may not be a legally enforceable term. Even if the Agreement is signed indefinitely, the timeframe should indicate when the information is no longer protected by the NDA.
  • Common NDA mistakes that create loopholes. When does NDA not work?

    Law practice would not be complete without the loopholes. So, as it is one lawyer’s job to protect, it can be another lawyer’s job to find and exploit the loopholes that your NDA contract may contain. What’s an NDA loophole? A broad term, an inaccurate name, and some of the other things that, when exploited, may not be deemed by a court as breach of NDA.

    Let’s try to cover most of them:

  • Broad definition of what is confidential. Try to be as precise as possible, and only limit the necessary information as confidential. Here are some contract quality assurance tips to help you.
  • Legal name or Trading name? Be careful who you indicate as a Receiving Party. Some may have different names, but only Legal Name is the right one to use in an NDA contract.
  • Unreasonable or onerous scope. Avoid being overly cautious and cover all aspects of your business in the NDA. Be careful - if your agreement is overly unreasonable, the court might enjoy striking it as invalid.
  • Third parties, third parties everywhere. If the Receiving Party obtained sensitive information from an independent contractor that works with you, that will not be considered breach of Non-Disclosure Agreement. Bear that in mind.
  • Agreement signed by the person with insufficient authority. Watch out who you give the pen to—make sure they have great power to bear great responsibility.
  • Receiving Party managed to develop information independently. Great minds think alike. And they may also come to the same conclusions as you do. If they manage to do so, and prove that, the NDA won’t work.
  • What do you do if your NDA was violated?

    It usually does not get to that but...what to do when your sensitive data has been compromised? Since we should not, by any means, recommend gravedigging, let’s see how our NDA may be of help. Here’s what you should do:

  • Put that shovel down. You won’t need it.
  • Review the original document. Remember the Obligations component? Go through it to recall the consequences that should be enforced on the side that breached the agreement.
  • Perform the investigation. Now this may be the hardest part. But if you’re going to court, you have to have sufficient evidence of breach of NDA, so the judge can do their job in your favor. Presenting the court with the right information is crucial. An investigation is good for you to ensure such leaks won’t happen again. You can also avoid some of the breaches by having a proper contract lifecycle management.
  • Make the legal claim. You have all the information, and the rights, to do it. File a complaint and let justice prevail, only make sure it’s on the right side—your side.
  • How AXDRAFT works with NDAs.

    AXDRAFT takes every type of legal document automation seriously, NDAs included. Our team even discussed document automation Myths in one of our recent articles to see if it is really worth the talk. We work with lawyers and businesses from various industries and countries, and we build a dynamic template that covers every NDA variation a business needs.

    At AXDRAFT you can:

  • create NDAs by answering simple questions in the questionnaire. Our sytem will suit it to your needs in minutes.
  • have one dynamic NDA template instead of 10s or 100s of static ones. Why have tons of files when you can have one template with multiple drafting options?
  • can send data requests to counterparties. This can save you weeks in sending emails with data requests.
  • can pull data from public registries or previous projects. No need to google important info every time you need the document drafted.
  • Did we already mention our legal playbook that can include any number of clauses to add to the text of your Non-Disclosure Agreement? Well, we just did. See for yourself how simple it is:

    Does this sound unreal to you? Try our instant demo, which will give you a perfect NDA in 57 seconds.

    Summing Up

    We now know what is an NDA contract—a document that helps protect a business’s sensitive data, innovator’s innovation, even a chef’s recipe. Non-Disclosure Agreement can be Mutual or Unilateral, but their goal is the same. We also know of the importance of the proper structure of such a document, if we want to be able to enforce it upon the breacher. But only after we perform the necessary investigation and make sure the breach won’t happen again.

    Smart stuff aside, NDA’s have become an important part of business’s everyday life in the world that feeds on competition and information. NDA contracts protect our data from being maliciously exploited and ensure that spy games are played somewhere outside your office.

    Stay safe and keep your information safe as well!

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