Non-disclosure agreements
Non-disclosure agreements can protect your ideas or invention when you need to discuss them with investors, manufacturers and other third parties
A non-disclosure agreement (NDA), also known as a confidentiality agreement, is a legal contract where you and another party agree not to disclose information that you have shared for a specific purpose.
NDAs can cover valuable business assets, such as trade secrets, technical drawings and designs, mathematical and chemical formulae, business plans, and customers and prospect lists. You can use an NDA to protect your ideas or invention when you need to discuss them with potential investors, manufacturers, partners, business advisers and other third parties.
This guide explains the different types of non-disclosure agreements. It tells you about the templates you can use and shows you how to write your own contract, should you need one tailored to your specific circumstances.
Finally, it highlights issues that you need to bear in mind when preparing and negotiating the terms of a non-disclosure agreement.
What is a non-disclosure agreement?
What is a non-disclosure agreement, and how to use an NDA to share business information, ideas and trade secrets in confidence
A non-disclosure agreement (NDA), also known as a confidentiality agreement, is a legal contract that provides a way to protect business ideas.
Legally binding non-disclosure agreement
An NDA is a legal contract between you and another party. Typically, you agree to disclose information to them for a specific purpose, while they agree not to disclose that information to anyone else.
This allows you to share your trade secrets with business partners while preventing them from passing this information on.
For example, you may have come up with a product design and need to get an estimate from a manufacturer of how much it will cost to make. An NDA can ensure that your partner does not pass details of your idea to one of your competitors.
As well as using NDAs with your clients, suppliers, resellers and advisers, you can also use these agreements with your employees and with journalists to whom you want to give a 'sneak preview' of financial, technical or new product information.
Read more about the different types of non-disclosure agreements.
What can NDAs cover?
NDAs can cover:
- trade secrets - eg a formula, programme or process
- technical drawings and designs
- mathematical and chemical formulae
- business plans
- customer and prospect lists
Information qualifies as a trade secret or confidential when it is not known in the public domain and is valuable only as long as it remains secret or confidential.
NDAs between you and public bodies need to be carefully considered because any information that you might provide may be disclosed under the terms of the Freedom of Information Act.
If you need to approach potential business partners, have a clear idea beforehand of what you want to share with them - and stick to it. This minimises the risk of breaching confidentiality.
Types of non-disclosure agreements
Different types of non-disclosure agreements and how to use them, including one-way and two-way agreements
A non-disclosure agreement (NDA) is a legal contract between you and another party not to disclose information you have shared for a specific purpose.
You can use an NDA to:
- share intellectual property
- share commercial or trading information
- formalise a relationship, eg between an employer and employee
You can tailor these agreements to your requirements. You can choose from several types of non-disclosure agreements.
One-way and two-way NDAs
You can use a one-way NDA when only one business is sharing information and the other agrees to keep it confidential.
You can use a two-way NDA (also called a mutual NDA) when both businesses are sharing confidential information with each other and want to be sure that neither will disclose their trade secrets.
Learn about the different ways to prepare a non-disclosure agreement.
Precedent confidentiality agreement
A precedent confidentiality agreement is used for mergers and acquisitions. If a company wants to buy your business, it will want to look at your books and assets. An NDA can provide an element of protection for your confidential information and trade secrets if the prospective buyer pulls out of the deal.
If you don't know exactly what information you will need to disclose during a commercial relationship, you can still use an NDA. It is a good idea to classify as confidential any information that you will disclose later so that the NDA still applies.
NDAs for employees
Current and former employees are responsible for most breaches of confidentiality. Employees are under an implied duty not to use trade secrets in a manner that will harm your business, but it is best to get this in writing and to specify to the employee exactly what is confidential. An NDA should also make provision for when the employee leaves your business.
Ways to prepare a non-disclosure agreement
How to write a non-disclosure or confidentiality agreement, and what the agreement should it cover
You can prepare a non-disclosure agreement (NDA) in many ways. For example, you can:
- customise a sample agreement document which you can find online
- buy a template document online
- create an agreement contract from scratch
Free NDA samples are available on the internet, including from the Intellectual Property Office (IPO):
These IPO sample agreements are drafted to reference English law, however, they can be customised to specify a different applicable law and jurisdiction (including that of Northern Ireland).
You can also buy non-disclosure agreement (NDA) templates off the shelf and adjust them for your needs. This is inexpensive and you can reuse the template if needed.
Regardless of whether you decide to use a template or work off a sample, it might be worth getting a specialist lawyer to check the contract document before you begin using it.
Read more about the types of non-disclosure agreements.
How to write your own NDA
A good NDA restricts the use of shared ideas and information to a specific permitted purpose. For example, this could be the evaluation of your idea or the discussion of a joint venture.
You should specify this purpose in the NDA as precisely as you can. You can widen the permitted purpose at a later stage.
If an NDA doesn't include specific definitions, it may not provide enough protection for you or your business. Read more about negotiating the terms of a non-disclosure agreement.
In addition to the permitted purpose, you should also specify how long confidentiality should last. For example, it's common for confidentiality to be limited to three or five years. After that time, the person you've shared information with will be able to use and disclose it. Once information is made public, you won't be able to rely on an NDA.
You should consider asking a lawyer to draw up a bespoke confidentiality agreement for added protection. .
Negotiating the terms of a non-disclosure agreement
Key clauses to negotiate in a non-disclosure agreement, including the specific purpose and duration of the protected term
A non-disclosure agreement (NDA) could suit you if you want to approach industry contacts such as a potential buyer, supplier, customer or partner.
In the agreement, it is a good idea to specify:
- how the information can be used - ie the specific purpose
- what the restrictions are on the use of the information you provide, eg preventing the recipient from making copies
- who retains the intellectual property rights, copyright or possible patents which may result from the disclosed ideas
Key NDA clauses
The key clauses in your confidentiality agreement should detail:
- protection against the copying or retention of confidential information
- protection against disclosure of information not already in the public domain
- a remedy, eg compensation, for any breach of the agreement
- duration of the term of confidentiality - once information is made public in any way, an NDA can no longer be enforced
Find out more about the key non-disclosure agreement terms.
Under the terms of the Freedom of Information Act, public bodies will usually reject any confidentiality agreements that relate to the terms of the contract, its value and performance. It is a good idea to ask public bodies if they have a confidentiality agreement or NDA which meets the terms of the Act.
Secure your confidential information
You should aim to physically secure your confidential information. In any legal action for breach of confidentiality, the courts would be reluctant to treat information as a secret if you had not taken practical steps to protect it.
Such measures could include:
- locking confidential information away
- limiting the number of people who can access the information
- ensuring you have up-to-date IT security systems in place
It would also help your case to have company policies regarding the use and disclosure of confidential information and preventing business data breach and theft.
Issues when signing a non-disclosure agreement
What are the most common issues around non-disclosure agreements and how to ensure your NDA protects you against conflict
Once you sign a non-disclosure agreement (NDA), you have entered into a legally binding contract. This allows you to share ideas with business partners while preventing them from passing this information on.
Problems with non-disclosure agreements
Unfortunately, the contract is only as good as the person signing it. If your partner breaches the contract, you can take them to court for damages, but this might be expensive and time-consuming. It can also be difficult to quantify the damages.
If you suspect that your business partner may be about to breach the NDA, you can get an injunction, ie a court order, to stop this from happening.
Agree clear terms of confidentiality contract
To put you in a better position if you do have to go to court, make sure that:
- all definitions and exceptions in the confidentiality agreement meet your requirements
- all terms are appropriate to the type of trade secret you are sharing
If the contract is flawed, it might not provide enough protection.
Common issues
The biggest difficulty is often determining exactly what is and what isn't covered by the agreement. The person disclosing the information wants the contract to be interpreted in its broadest form, whereas the partner prefers to see the contract interpreted in a narrower way. If any issues arise and worry either party, it is possible to change or add clauses to resolve the issue.
See more on negotiating the terms of a non-disclosure agreement.
Key non-disclosure agreement terms
Definitions of some of the key terms in a non-disclosure agreement
Certain terms are likely to crop up in non-disclosure agreements (NDAs). It is a good idea to understand these terms and their definitions.
| Term | What is it? |
|---|---|
| Confidentiality | A legal principle that maintains secrecy between parties. |
| Owner or discloser | The name of the person, organisation or business disclosing the information. |
| Recipient | The name of the person, organisation or business that is receiving the information and that is responsible for ensuring its confidentiality. |
| Statement of reasons | A short paragraph defining the context in which the information will be disclosed and why the parties want to make the information the subject of a contract. |
| Subject | The information and documents that are the subject of the confidentiality agreement. |
| Penalty clause | An optional way of fixing an amount of compensation that the owner or discloser is paid if the recipient breaches the agreement. |
| Confidentiality clause | An optional clause that requires both parties to keep the existence of the confidentiality agreement a secret. |
| Term of agreement | How long the obligations of the contract last for. |
Read more about negotiating the terms of a non-disclosure agreement.