Nearly all businesses have valuable, confidential information and the protection of that information is usually a top priority for these companies. Confidentiality agreements or nondisclosure agreements (NDAs) are frequently used tools that are critical to helping a business protect its information from disclosure. At its essence, an NDA is a legal contract negotiated between two or more parties that outlines the confidential, proprietary, or sensitive information a party desires to disclose and imposes on the party receiving that information a legal obligation to keep the information secret. The type of information that can be protected by an NDA is virtually limitless.
NDAs are fairly common in many business settings. Companies frequently require a signed NDA as a prerequisite to sharing information with potential customers or vendors. Many employers will require new employees to sign confidentiality agreements before gaining access to the employer’s trade secrets and other proprietary information such as product schematics, sales and marketing plans, or unique manufacturing processes.
Although it is possible to have an oral NDA, there are many reasons for requiring a written confidentiality agreement instead of relying on informal understandings or an oral contract. Among these reasons are that:
- It permits the parties to define what information is to be considered “confidential information” instead of leaving it to a court to decide later.
- It allows the parties to outline how the receiving party may use the disclosing party’s information and equally importantly how the receiving party may not use that information.
- It allows the parties to identify the specific steps the receiving party will take to protect the secrecy of the information.
- It is virtually always easier to prove the terms of written contracts than of oral agreements.
There are two basic types of nondisclosure agreements: unilateral and mutual. Unilateral NDAs only impose obligations of confidentiality on one of the parties to the agreement. These types of NDAs are used most often in situations where only one party will be sharing information or where there is a great disparity in negotiating position between the parties. For instance, a company may require a consultant to sign a unilateral NDA before giving the consultant access to the company’s databases or systems. Many employer-employee confidentiality agreements are drafted as unilateral agreements as well.
NDAs that impose confidentiality obligations on both parties are known as mutual NDAs. Depending on where they are entered or the industry in which they are used, mutual NDAs may also be referred to as bilateral NDAs, two-way NDAs, or reciprocal NDAs. They are typically used in circumstances where each party will be both a discloser of its own information and a recipient of the other party's information. Even where the parties are not exchanging confidential information of equivalent kind or value, the parties may still opt to use a mutual NDA. In such circumstances, the parties may wish to separately define the scope and nature of the confidential information that each party will disclose and their respective nondisclosure obligations and access and use restrictions. Mutual NDAs are often used when two companies are considering a joint venture or a potential merger.
Although NDAs come in an infinite variety of forms and styles, to be effective an NDA should at a minimum contain the following basic elements:
- It should identify the parties to the agreement;
- It should define what information will be considered confidential;
- It should detail the permitted and prohibited uses of the information;
- It should specify the duration of the confidentiality obligations;
- It should address post-expiration or termination handling of the information (e.g. return or destruction); and
- It should select a governing law for purposes of enforcement.
The attorneys at Lubin Austermuehle have over thirty years of experience defending and prosecuting business lawsuits and breach of restrictive covenant claims. We are committed to understanding our clients’ needs and fighting for their rights in the courtroom and at the negotiating table. Conveniently located in Chicago and Elmhurst, Illinois, we have successfully litigated complex commercial and non-compete and trade secret and covenant not to compete cases for clients all over the Chicago area. To schedule a consultation with one of our skilled attorneys, you can contact us at 630-333-0333 or contact us online.