While learning about Non-Disclosure Agreements (NDAs) and their significance in pre-contract negotiations, it is important to first understand their basics. NDAs protect confidential information exchanged between parties and establish legally binding contracts. To understand the reasons for entering into an NDA, the different types of NDAs and essential elements to consider while finalising an NDA, click here.
In this article, we will discuss the scope and elements of Non-Disclosure Agreements (NDAs) and explore the types of information that can be protected under them through a series of questions and answers.
Which information can be protected under an NDA?
Defining confidential information is a critical part of the NDA drafting process. In effect, there is no specific definition for the term “confidential information” and an exhaustive list is not possible or desirable. As a thumb rule, the said definition should be comprehensive when we are disclosing any information and should be specific when we are receiving information. It usually covers information provided by the disclosing party to the receiving party, whether in tangible or intangible form, disclosed in writing, verbally or visually, in electronic or other form of media, relating to the past, present or future, in the context of contractual or pre-contractual relations.
This information should also be clearly identified as ‘confidential’ at the time of disclosure or by its nature recognised as potentially confidential or disclosed in a manner that it may be reasonably inferred to be confidential, to the disclosing party, at the time of disclosure and the unauthorised disclosure of which will lead to unwarranted losses to the disclosing party.
In general, NDAs are used to protect information including but not limited to the following: customer and employee information, financial information relating to the business or customers, intellectual property such as patents, copyrights, trademarks, trade secrets, technologies and business information relating to operations, marketing processes, policies, pricing strategies, techniques, supplier information and any such related information, which is not publicly disclosed.
Are there any exclusions to the confidential information included in an NDA?
The definition of confidential information is not an absolute one and excludes the following kinds of information:
- Information which is or has come into the public domain otherwise than through an NDA breach by the receiving party.
- Information which has been approved for its use or release by prior written permission of the disclosing party.
- Information which is required to be disclosed by any statutory requirement or application of the law or by the court’s order.
- Information which was independently developed by the receiving party without making use of the confidential information.
The above exclusions should be clearly recorded in the NDA.
What should be the term of an NDA?
The validity of an NDA may differ based on the type of information that needs to be protected and the desire of the disclosing party as to how long they want a piece of information to remain confidential. Signing parties generally prefer for the NDA to expire at some point and having a reasonable period for the NDA becomes desirable in case of any disputes between the parties, as courts prima facie look at the term, reasonableness and impact of the NDA clauses on the receiving party while passing necessary interim orders. Accordingly, the receiving party will be bound to maintain confidentiality during the term mentioned in the NDA.
However, a question arises here: How can the receiving party be bound to maintain confidentiality even after the expiry of the NDA and for how long are they expected to do so? In that event, it is important to incorporate a clause in the NDA that protects confidentiality beyond the NDA’s term for a reasonable period. The said period will ensure that the receiving party does not leverage the confidential information accessed under the NDA.
What are the steps to be followed post-expiry or termination of the NDA?
As already discussed, even after the expiry and/or termination of an NDA, the receiving party may have access to the confidential information shared during the term of the NDA. Hence, from the point of view of the disclosing party, it becomes imperative to specify the mode in which confidential information will be treated after the expiry and/or termination of the NDA. In this regard, the disclosing party may ask the receiving party to either:
1. Return the confidential information exchanged during the term of the NDA including its copies or derivatives or,
2. Destruct the confidential information exchanged during the term of the NDA, followed by a written confirmation recording of the same.
As for the receiving party, it becomes important to identify the person who will be authorised to receive the confidential information and maintain an accurate record of the confidential information received during the NDA term.
However, it is not in every instance that information can be returned or destroyed and there are possibilities when confidential information may remain with the receiving party in an electronic form in their automatic archive, backup, security or disaster recovery systems. In such scenarios, it becomes necessary to incorporate concerned clauses in the NDA casting a specific obligation on the receiving party to continue to observe confidentiality obligations even after the NDA’s expiry/termination. The strict observance of the aforesaid aspects will ensure total protection of the confidential information post-expiry/termination of the NDA, thereby minimising the instances of a breach.
In conclusion, an NDA is essential for protecting sensitive information shared between parties. It covers various data but also excludes certain types of information. The NDA’s term should be carefully considered, and post-expiry steps are vital to ensure continued confidentiality. An NDA is a crucial tool in establishing trust and maintaining confidentiality in business relationships.
Find out about the responsibilities, reciprocal duties and obligations of the respective parties to NDA, to maintain confidentiality? Click here.
References:
https://www.barandbench.com/columns/breach-of-confidentiality-maintenance-covenants-amid-covid-19-concerns-and-remedies
https://www.hg.org/legal-articles/what-are-non-disclosure-agreements-in-india-55516
https://vaishalibhagwat.com/publications/non-disclosure-agreements/
https://www.investopedia.com/terms/n/nda.asp
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