Businesses regularly share sensitive information with potential investors, suppliers, business partners and employees. Whether discussing a new product, negotiating a commercial deal or exploring a business opportunity, protecting confidential information is essential.
A non-disclosure agreement (NDA) can help safeguard that information, but it is important to understand its limitations. An NDA is not a guarantee that your ideas or commercial interests will be protected in every circumstance.
What is a non-disclosure agreement?
An NDA is a legally binding agreement that restricts how confidential information can be used or disclosed.
There are two common types:
· Unilateral NDA: One party discloses confidential information, and the other agrees to protect it.
· Mutual NDA: Both parties share confidential information and agree to keep it confidential.
The appropriate agreement depends on the nature of the relationship and the information being shared.
What can an NDA protect?
A well-drafted NDA can protect a range of commercially sensitive information, including:
· Trade secrets and technical information: Manufacturing processes, formulas, software specifications and product designs.
· Commercial and financial information: Pricing structures, profit margins, business plans and financial forecasts.
· Customer and supplier information: Confidential customer lists, supplier terms and prospective business opportunities.
· Product development: Unpublished designs, prototypes and research and development information.
For example, a business considering a potential acquisition may need to share financial records with a prospective buyer. An NDA can restrict the buyer from disclosing that information or using it for purposes unrelated to evaluating the transaction.
NDAs can also help protect confidential information when businesses collaborate with external consultants, manufacturers or prospective commercial partners.
What cannot an NDA protect?
Although NDAs are valuable, they have important limitations.
– Publicly available information
An NDA will not ordinarily protect information that is already publicly available. Agreements commonly exclude information that is in the public domain, was already lawfully known to the recipient or becomes public without a breach of the agreement.
– Ideas alone
An NDA does not automatically create intellectual property rights or give a business exclusive ownership of an idea. It may protect confidential details relating to an idea, but additional protection through patents, copyright, trade marks or design rights may be appropriate, depending on the circumstances.
Businesses developing potentially patentable inventions should seek advice before disclosing them, as premature public disclosure can jeopardise patent protection.
– Independent development
An NDA will not ordinarily prevent another party from independently developing a similar product or process without using the confidential information disclosed to them. Clear drafting helps establish what information is protected and what exclusions apply.
– Disclosures protected or required by law
An NDA cannot prevent every disclosure. Certain disclosures may be required by law or permitted under statutory protections, including protected whistleblowing disclosures. Specific statutory restrictions also apply to NDAs relating to certain disclosures of relevant conduct.
An agreement should therefore avoid imposing absolute confidentiality obligations that could be unlawful or unenforceable.
What should an effective NDA include?
A generic template may not adequately address the risks associated with your business. When drafting or reviewing an NDA, consider whether it:
· Defines confidential information clearly, including relevant documents, electronic records and verbal disclosures.
· Restricts permitted use, ensuring information is used only for the agreed purpose.
· Specifies the duration of confidentiality obligations, taking account of the nature of the information.
· Addresses return or destruction of confidential materials when discussions end.
· Provides for appropriate remedies if confidential information is misused or disclosed without authorisation.
Businesses should also consider practical safeguards, such as restricting access to sensitive information and using secure document-sharing systems. Ideally, an NDA should be signed before confidential information is disclosed.
Berry Smith’s Bottom Line
At Berry Smith, our Commercial team advises businesses on confidentiality agreements and a wide range of commercial contracts. We understand that effective protection requires more than simply signing a standard document.
We can assist with:
· Drafting bespoke NDAs tailored to your business and the information you need to protect.
· Reviewing third-party agreements to identify potentially unfavourable terms and gaps in protection.
· Advising on confidentiality and intellectual property, including whether additional contractual safeguards may be appropriate.
· Supporting commercial negotiations where confidential information is shared as part of a proposed transaction, collaboration or business relationship.
Whether you need a straightforward NDA or advice on confidentiality risks within a wider commercial arrangement, we can help you identify the appropriate protections for your business.
Contact us: commercial@berrysmith.com