How Non-Disclosure Agreements protect your business

In an increasingly competitive and innovation-driven market, safeguarding confidential information is a fundamental concern for businesses. Whether engaging in commercial negotiations, discussing potential partnerships, or protecting intellectual property, ensuring that sensitive data remains secure is paramount. A Non-Disclosure Agreement (NDA) serves as a critical legal instrument to prevent the unauthorised use or disclosure of proprietary information and to provide some protection to a business in the event that there is unauthorised use or disclosure (contrary to the terms of the NDA).

This article provides an overview of NDAs, outlining their purpose, common applications, and legal implications in the event of a breach.

What is an NDA?

An NDA (Non-Disclosure Agreement) is a legal contract used between businesses or individuals to protect confidential information. It is typically drafted by a legal professional and signed by the parties involved. It defines what information is considered confidential, the circumstances under which it can be shared, and any restrictions on its use. NDAs are sometimes referred to as Confidentiality Agreements.

While some legal protections exist for confidentiality and trade secrets, such as copyrights and patents, an NDA is often easier to enforce. It provides clarity on what information is covered and who is permitted to access it. This makes NDAs a valuable tool for businesses looking to secure their sensitive data, especially when other protections may not fully cover all aspects of the information.

What is an NDA used for?

NDAs can be used in any situation where confidential information needs to be protected, but they are particularly common when businesses are exploring potential collaborations. At the early stages of a business relationship, there may be no formal contract in place, yet confidential information may still be shared.

For some intellectual property (IP) rights, confidentiality is essential for registration. For example, patents require that inventions are new (i.e., they are not made publicly available), and registered design rights must be applied within 12 months of public disclosure. NDAs can help protect sensitive information until IP rights are secured.

Examples of NDAs in practice

1. Author and publisher – An author looking to publish a novel may need to share details about their story with a publisher. As copyright might not protect all aspects of the work, an NDA ensures that the publisher cannot use or disclose the author’s ideas without permission.
2. Selling a business – If you are selling your business, you will likely need to share financial and operational details with potential buyers. An NDA ensures that this information is only used for evaluating the purchase and not for competitive advantage.
3. Video game development – Game developers often release early versions of their games for beta testing. An NDA can prevent testers from leaking gameplay footage or spoilers before the official launch.
4. Secret recipes and manufacturing – If you have created a unique recipe and want to outsource production, an NDA (or confidentiality clauses in a broader agreement) can protect your formula from being shared or misused.

Breach of an NDA

An NDA can be breached in several ways, such as:

• Sharing confidential information with unauthorised parties;
• Using the information for purposes outside the agreement; and
• Failing to take reasonable steps to protect confidential data.

If an NDA is breached, you may have legal remedies, including:

• Injunctions – A court order preventing further disclosure. If someone threatens to reveal confidential information, you can seek an injunction to stop them. A breach of an injunction can lead to contempt of court proceedings.
• Damages – Compensation for financial losses resulting from the breach. If someone unlawfully profited from your confidential information, you may be able to claim damages for the loss you have suffered.

Breaching an NDA is generally a civil matter, meaning it does not typically result in criminal charges. However, using an NDA to obstruct law enforcement, for example, preventing someone from reporting a crime, could constitute a criminal offence.

Should I get an NDA?

If you need to protect confidential information, an NDA is an essential tool for your business. If you are unsure whether an NDA is suitable for your situation, our team is here to provide expert advice.