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Development of Non-Disclosure Agreements (NDA’s)

What is NDA and what are its peculiarities?


The Confidentiality Agreement (the Agreement of Non-Disclosure of Confidential Information or Agreement of Secrecy) is an agreement concluded by and between two parties which agree to protect confidential information disclosed in the course of commercial activities. Please pay your attention to the fact that main provisions have to include the definition of confidential information, exclusions from the notion of “confidential information”, obligations of the parties, and the duration of the agreement. For example, in the programmers’ world, general business ideas, codes, databases, documentation, development tools and methods, information processing methods, and many other can be deemed confidential information.

 

What does NDA protect from?


     — From unfair competition. It is also regulated by provisions of the Law of Ukraine “On Protection Against Unfair Competition”, in which the legislator gives definitions to notions “disclosure of commercial secret”, “unlawful use of commercial secret”.

 

What are main kinds of non-disclosure agreements:


   1 - A traditional NDA. It is the most commonly used version of the confidentiality agreement (a sample). It is a general template which can be used in practically any situation when a company or a person needs legal protection of their ideas and achievements.

   2 - NDA for inventors. This kind of the agreement can be used by inventors for protection of their unpatented solutions/innovations. Inventors often find themselves in a situation when they have to discuss their project with an interested party. In this case it is important that the author can remain confident that the information about the patent item will no be disclosed pre-term. In this document it is specified what is to be deemed “Confidential Information” for both parties, including projects, layouts and business transactions.

   3 - NDA for an employee. This version of the agreement is used for notification of employees of the company that they should not discuss certain business information outside of their workplaces. This document is necessary in order that enterprises can protect their commercial secrets, as it is stated therein that the employer’s employees are obliged to acknowledge the fact that the discussion of financially significant information is a violation of their labor contract.

   4 - NDA for interviews. There are cases when secret information has to be disclosed during an interview. In such cases, companies have to exercise care so that their potential employees sign such agreement before the interview. As candidates just participating in interviews sign no agreements which are entered into with hired employees, the special-purpose NDA guarantees that they will not be allowed to discuss confidential information with third parties.

 

When a confidentiality agreement is entered into?

 

When it is necessary to protect your ideas and other important information. Here is an example from my practice.

 

As I am the owner of the company which is engaged in web development, we are often contacted by entrepreneurs who need assistance of my professionals. For example, you have referred to me and want to create a unique web application. You have a not large startup company with ambitious plans, and you don’t want me to steal your idea and be the first to bring the product to the market. Because I have serious capabilities and a team of professionals for that and you only have your idea yet.

 

Before you disclose your ideas to me, we can sign a NDA by and between our companies. In such case, I will be obliged not just to keep the received information secret, but also to take all measures so that the information will not be distributed to outside parties through my employees.

 

What is the essence of NDA?

 

Two parties agree to protect confidential information which will be disclosed in the course of collaboration. In fact, it is an agreement about commercial secret.

Parties to the agreement:

    -  “the transferring party” is the owner of confidential information;

    - “the receiving party”, the contractor, is the company which guarantees the preservation of commercial secret.

 

5 issues to keep in mind before signing the agreement

If you don’t know what to do when requested to sign an NDA, pay attention to the following 5 issues:

    1. Scope of the document. You have to understand what the NDA requires from you, namely: to carefully read the obligations section, to appraise your rights. What information do you have to keep in secrecy? What steps do you have to take in order to preserve the confidentiality? What is the duration of the NDA? That all has to be known and understood so that you don’t incur financial liability in result.

    2. Pay attention to the list of exclusions. The smaller is the list of items which are not secret information, the more uncertain is the situation for you. If exclusions are set forth in a particular agreement, that list has to be as exhaustive as possible. In the other case, you cannot escape judicial proceedings.

    3. Compensation for losses. You have to understand that there liability is stipulated for violation of the agreement. The information about the scope of liability must me stated in such agreement. The inclusion of the “Parties’ Liabilities” section guarantees that if you violate the NDA, the company or the employer will be entitled to compensation if actual damage is caused. In other case, if the liability is provided for just for violation of provisions of the agreement, it is better not to sign it at all.

    4. Consequences of violation. Look, whether some unusually severe or unfair sanctions are provided for violation of NDA. If the penalty is not proportionate to the violation, it is better to refrain from signing such an agreement.

    5. Possibility reach an agreement. You can always initiate making changes in the document if you find something you consider unfair or improper. No transferor of information is entitled to obstruct the change of provision of the agreement, if that is done upon mutual consent of the parties.

 

What does entering into an NDA mean for the owner of information and for the contractor company?

 

If information is stolen, its owner can refer to court for protection of his/her/its right to commercial secret. He/she/it will have to prove that the contractor company has stolen and used the information, and in that way breached terms and conditions of the contract. In such case, the contractor company will have to pay to the owner of information a penalty sanction provided for in the contract. As a rule, those are significant amounts of money which compensate for all lost profit.

 

As to the contractor company, it has to take all reasonable measures in order its employees do not steel the information and not to transfer it to any third parties. Otherwise, the company will be under threat of significant financial liability.

 

When and where can an NDA be useful?

Agreements of non-disclosure and of confidentiality of information are surprisingly widespread in the process of establishment of contemporary business relations. Usually, NDA’s are made for the protection of:

        · Business models which will be presented to a venture group for possible financing;

        · Information about an innovative product / idea before it is patented;

        · Information about clients and everything related to details of running business by them;

        · Results of laboratory researches, various tests, etc.

NDA’s are widely spread in IT business because they offer one of the most reliable ways of protection а confidential information. The information which is protected by an NDA may include information about the key product of the company, information about clients and ordering companies, plans of sales and marketing development or description of a unique production process.


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