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29 January 2016

Non-Disclosure Agreements (“NDAs”) – can you keep a secret?

NDAs (also referred to as confidentiality agreements) are a crucial tool when seeking to protect your designs, inventions or ideas. The ultimate form of protection is of course not to divulge the information in the first place, however you will eventually reach the stage where this strategy becomes impractical; particularly if you are undertaking a joint venture or looking for a manufacturer or business partner.

Some of the key issues to keep in mind when considering an NDA are outlined below.

1.  Do you need an NDA?

It is important firstly to consider whether or not an NDA is appropriate. If you have already disclosed the information you are seeking to protect (perhaps online, for example) then an NDA may not be enforceable as the information could be classed as being in the ‘public domain’.

It is essential that you discuss such disclosures with a professional advisor at an early stage so you are fully aware of the potential pit-falls.

2.  What information are you seeking to protect?

You should ensure that the subject of the agreement is clearly defined; consider what the confidential information really is and how can that be clearly explained in the NDA.

3.  Where is the information coming from?

You should consider whether you are going to be the only person disclosing information or whether it will be a two-way process, for example if you are each sharing a list of customers or suppliers.

If the information is one way only then it may be the case that the NDA needs to be executed as a deed, legal advice should be taken here as if the NDA is executed incorrectly it will not be binding.

4.  Confidentiality

Clearly, a key term will be the confidentiality clause. You should also consider who should be bound by the agreement and for how long. When deciding who the parties to the NDA should be, you need to consider whether it is an individual or a company you are dealing with. You should also consider who else may need to know the information and make sure they are bound by the agreement.

5.  What if there is a breach of confidentiality?

As you are aware, once the information has been ‘leaked’ there is nothing that can be done in terms of the loss of confidentiality, but there may be redress against the other party in the form of compensation.

You should consider a having penalty clause which provides a fixed figure for compensation in the event that confidentiality is breached. Our recent article on penalty clauses set out the general principles you should consider when using penalty clauses.

Without a penalty clause, actual loss would need to be proved in court which, although sometimes the only option, is almost inevitably a time consuming and expensive exercise.

For advice on this subject please contact commercial@steeleslaw.co.uk.