Non-disclosure Agreement

Introduction:

To create a safe ecosystem for your business, there’s a way out! NDA or Non-disclosure agreement, is the savior. The grappling fear of your confidential data that you share with your company partner or another party, whosoever it is; being misused is something that doesn’t sink in so easily.

To master this term, we need to go into the minutest details of it.

What is a Non-disclosure agreement?

A non-disclosure agreement is a written agreement that is between the two parties (people or organizations) that restricts the objective of sharing confidential data between both the ends.

In other words, if you are issuing and NDA to the other party, you are expecting the party not to share information with any anyone, and to keep it confidential to the level of expectations; while on the other hand,  if you are being issued an NDA, you are not expected to share any confidential data of the party issuing it, to anyone.

Non- disclosure agreement is also knowns as with numerous names, such as; Confidential Agreement (CA), Secrecy Agreement (SA), Proprietary Information Agreement (PIA), with other names as well.

Key aspects of Non-disclosure Agreement

They includes:

• Recognition of the parties involved in signing the agreement.
• A clear- cut definition of what constitutes of the confidential data under the agreement.
• The purpose and reason of sharing the information has to be very precise and clear.
• The do’s and don’t of using the information and an elaborate explanation over the same.
• Duration and time- frame of the agreement has to be explicitly mentioned.

Types of Non-disclosure Agreements

In general; there are three types of NDA’s. They are:

• Unilateral NDA: In this type of NDA, it is only the one party that discloses the confidential data, and the other party is expected to prevent their data from any further disclosure.
• Bilateral NDA: In this, there are two parties involved, which protect each other from external parties.
• Multilateral NDA: Here, more than two parties are involved, and one of the parties disclose their data to each of the other parties. Furthermore, they promise to protect each other’s data from external parties.

Significance of the NDA

There arises a situation when we need to sign the Non- disclosure agreement. Some of them are:

• Business deals: When starting a venture or for newly established firms, it would be a great idea to get each employee sign NDA, to ensure the confidentiality of the data shared, when the employee is on the short- term basis or abscond from the startup. It is even beneficial in the cases when you are inviting the vendors or consultant, to ensure that your information does not go out.   
• New Project: While, starting with a new project, the involvement of internal and external stakeholders is a must. Henceforth, signing an NDA will lead to clear off all the ambiguities or claims which could be involved further at the end of either party at any point of time.
• Investors or Mergers and acquisitions: Though, an obsolete way out in respect of investors; still when reaching out to the advanced stage of communications, looking inside the numbers and papers, a request to sign an NDA can be forwarded.

            The same goes for the process of mergers and acquisitions.

Usefulness Of Non-disclosure Agreement:

The major benefits of an NDA are:

• Legal Benefits: It is a legal document and of immense importance. It is significant in the cases of conflict between the parties. Compensation for damages, if the agreement is infringed, is a provision that is legally binding on either of the parties, who created the ruckus.
• Avoiding ambiguities: NDA clearly states the terms in a written format, all it comes under the bracket of ‘confidential’. Hence, in the long term, it abstains from any kind of ambivalence or loss of information.
• Maintains secrecy clause: NDA preserves the secrecy of information shared between two or more parties. It even mitigates the chances of important information going out of the organization.
• Safeguards Intellectual Property: NDA prevents disclosures of intellectual property (including trade secrets, proprietary information, and other confidential information). Therefore, it protects the involved organization as a whole.

Key points to keep in mind while signing an NDA

There are certain points, which need to be taken care of while creating an NDA. They are:

• The information mentioned has to be precise.
• The language used should be simple and with as much clarity as one could.
• Reading and verbal explanation of the agreement should be done in front of the involved parties. It will help in avoiding any further misunderstandings.
• Be as less conflicting while drafting the agreement, as well as, there should not be any involvement of non- required clauses.
• The details regarding the expiration date and renewal process of the document is mentioned clearly thereof.

Remedies available in case of violation of an NDA

At any point, if you discover that any confidential information covered under a clause of the NDA is being shared publicly, it is of utmost importance to quickly gather evidence against the action.

Get answers for questions like who has leaked the information, how have they leaked it, what is being done with the information, and so on.

The next step is to hire an attorney familiar with business nature and further follow the legal road.

With this, you are all set to safeguard your business and its details by drafting a quality NDA in place. NDA comes under the bouquet of the little things that build the prerequisites of any successful business.

Case Laws

In Hi-Tech Systems & Services Ltd. v/s. Suprabhat Ray and Ors. [AIR 2015 Cal 261), the Plaintiff, a company that manufactured and sold technologically advanced highly engineered products and equipment for the power and process sector industries had employed the Respondents who were obliged to keep confidential all information and material provided to them during their employment with the Plaintiff, and thereafter until a period of three years from the date of termination/resignation vide a code of conduct/human resource policy circulated to them during the course of their employment.

Soon after the resignation by the Respondents, the Plaintiff learned that the Respondents had started a competing business and solicited the Plaintiff’s clients using valuable data and information illegally procured from the Plaintiff’s database.

As a result of such finding, the Plaintiff filed an application before the Hon’ble Kolkata High Court praying for an order of injunction restraining the Respondents from divulging and/or using in any manner the Plaintiff’s computer database containing confidential information and trade secrets.

After hearing both the parties the Court held that- “The respondents by reason of their employment were in possession of all the confidential information and trade secrets such as prices, clientele, database, the exact requirements and other confidential information attached to the trade which the said respondents are not entitled to reveal”.

In the matter of Fairest Media Ltd. v/s. ITE Group Plc [2015(2) CHN (CAL) 704], the Petitioner, a company engaged in the business of organizing travel trade shows entered into an NDA on March 15, 2013, for a period of six months with the Respondent in the anticipation of entering into a Joint Venture Agreement at a later date.

As per the said NDA, the recipient was required to keep the information confidential and not disclose directly or indirectly the said information for a period of two years after the termination of the NDA.

The information supplied to the respondent related to matters concerning marketing strategy, customer base, costing, and profitability for the organization of travel trade shows.

Thereafter, due to various issues, the negotiations between the parties broke down, which resulted in the Petitioner filing an application before the Hon’ble Kolkata High Court for restraining the Respondent from sharing any confidential information received by it for the period stipulated under the NDA.

Upon hearing the parties, the Hon’ble Court held that “Business information such as cost and pricing, projected capital investments, inventory, marketing strategies, and customer lists may qualify as trade secrets” and passed an injunction restraining the defendant from sharing any information concerning marketing strategy and customer base received from the Petitioner until the time stipulated under the NDA i.e. for a period of 2 years from the date of expiry of the NDA September 30, 2015, thus, enforcing the secrecy clause as stipulated in the NDA between the parties”.

The ruling in both the above decisions suggests that Courts may not be impervious to enforcing secrecy clauses post-termination of an agreement.

In the cases mentioned above, an obligation of secrecy surviving for two to three years post termination of an agreement was enforced without any objections as to the time frame, which could be construed to mean that such a time frame may be considered reasonable.

Conclusion

However, it would be premature to conclude that the law is settled on what are reasonable restrictions that can be enforced in a secrecy/non-disclosure clause post-termination of an agreement.

So the next time, if you’re about to kick start your business with a new strategy, make sure you use the above-mentioned points and keep safeguarding your business on the side; while you grow!