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A non-disclosure agreement is a confidentiality agreement used by companies in order to protect privileged information and sensitive information.

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Non Disclosure Agreement: What Is It?

A non-disclosure agreement is usually between two parties. This could be an employer and an employee, a company and an independent contractor, or another type of business partnership.

The non-disclosure agreement must include specific details about the information that will need to remain confidential. The more specific detail regarding the information that is listed in the agreement, the better. This will ensure everything that needs to remain confidential will be covered by the contract.

An agreement involving confidentiality should be reviewed and signed before the parties begin working together with the restricted information. This ensures that the agreement is in place legally before the information is shared between them.

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Nailing the NDA - Writing a Non-Disclosure Agreement

Today's business world is a global marketplace, fueled by networking and the cross-fertilization of ideas. As an entrepreneur, you want to join forces with talented professionals who can help expand your business and make your big ideas into reality. The internet makes finding such collaborators easier than ever.  However, before you start sharing your ideas all over the world, you need to take steps to protect your intellectual property. That's where the non-disclosure agreement (NDA), also known as a confidentiality agreement, comes in.

What's that?

A non-disclosure agreement is a document that protects confidential information. Anybody privy to valuable intellectual property, whether they are an employee, a partner, a client, a consultant, a vendor or an investor, should be asked to sign one.

Do I need to use this non-disclosure agreement for everything?

No, and you don't want to overuse it. People dislike hassle, and a powerful party like a potential investor will often walk away from the prospect of signing an NDA, in favor of a project that doesn't require one.

Here are two examples of situations involving intellectual property. One is NDA-appropriate and one is not.

Not NDA-Appropriate : An idea for an oxygen-run robot that churns out macaroni and cheese.

NDA-Appropriate : An idea - including blueprints, calculations and a list of potential materials - for an oxygen-fueled macaroni and cheese robot.

See the difference? The first idea is just that - an idea. It may seem original, but technically someone else could have thought of it. The second idea warrants a non-disclosure agreement because it includes data -  specific plans, blueprints, etc. - that can be used to bring the idea to fruition. In other words, it contains intellectual property that someone else couldn't just think of, and is therefore in need of official legal protection.

So, what goes into a confidentiality agreement?

A typical non-disclosure agreement should contain the following:

  • Names of all involved parties
  • Governing jurisdiction - The state or municipality under whose law the NDA is enforced. In some circumstances, Federal Law might govern the agreement, if the intellectual property is registered with the United States Patent and Trademark Office.
  • Definition of confidential information - List all items of information covered by the agreement, such as vendor lists, financial data, blueprints, etc.
  • Terms - There should be two terms defined in your confidentiality agreement - the time period during which the information must be kept confidential and the time period during which the NDA is binding.
  • Permissible forms of use - Define the way in which signers must treat confidential information, ie: to only discuss it to authorized persons when necessary, to only use it for official purposes, etc.
  • Exclusions - Clarify what types of information are not confidential. These generally include information that is already known to the public, known prior to the NDA, or disclosed to the signer by another source.
  • Permissible disclosure - List instances, such as court orders or subpoenas, in which signers may disclose protected information.
  • Signatures and dates.

These are just the basics. Some states may have additional provisions for non-disclosure agreements. When drawing up your NDA, be sure to check your state's official website for any requirements.

Key Components of a Confidentiality Agreement

If you are a business owner who is issuing a confidentiality agreement (also known as a non-disclosure agreement, confidential disclosure agreement, or proprietary information agreement) to an employee or business partner, then you are using an important legal instrument.  In essence, you are asking that person to sign a form requiring him or her not to share a specified set of information that may be disclosed to him or her.  This information is probably of a sensitive, proprietary, and/or private nature, and breaking the terms of this contract could entail serious legal repercussions.  The information can vary widely and, to provide just a few examples, could include client information, trade secrets, an investment strategy, a unique invention or patent idea, a marketing plan, a plan for a new manufacturing process, a document that is being prepared for publication, or test results that have been revealed to lab workers.  Naturally, if you are a business owner who is preparing a confidentiality agreement template, it behooves you to know the major components that it should contain.

In contrast to a business owner, if you are an employee or business partner who is being asked to sign such a document, you will probably be on the receiving end of private or sensitive information and must refrain from disseminating it.  In this case, you will undoubtedly benefit from knowing the key components of a confidentiality agreement, since it is vitally important to understand all parts of a form that you are being asked to sign.  The good news is that it is not extremely difficult to learn about the main components of the document.

We can begin at the top of the document, which will most likely have a title clearly indicating that the form is, in fact, a confidentiality agreement (it might not call it by those exact words, since there are a number of possible synonyms).  Under the title, there should be a section specifying the full names of the primary parties involved in the contract—to wit, the disclosing party and the receiving party.  It is also not unusual for the contract to specify the location and/or contact information of these two parties.  Next, there should be a statement that the two parties agree not to disclose certain confidential information, which is to be spelled out throughout the document.

The next section would be the main part of the form, and it should enumerate the type(s) of information that must not be disclosed.  In other words, the confidential information should be defined as precisely as possible in this section.  Afterwards, there may also be a component of the contract in which exclusions are specified.  This section would clearly explain any type(s) of information that would not be barred from disclosure.  Examples could include information that is publicly known or that the recipient has developed independently.

Another typical component of the confidentiality agreement template will lay out the obligations of the receiving party.  To put it simply, these obligations will center on the requirement of the recipient to keep the information in strict confidence and to refrain from disseminating, copying, publishing, or otherwise revealing it without express permission from the disclosing party.

After the obligations of the recipient have been explained, other sections will often include a specification of the time period of the contract, as well as any severability clauses (conditions in which the contract may be terminated).  At the bottom of the form should be sections for the disclosing party and the receiving party to print and sign their names and to write the current date.

To see all of this on paper (or at least on a screen), you can try searching on the worldwide web.  If you intend to produce or sign this type of form, you'll be expected to understand each and every section of it; therefore, it's in your best interest to check out some examples, read each document carefully, and always be sure to know your rights before signing your name at the bottom of the page.

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