Why do you need an NDA?

Non-Disclosure Agreements – Why protect your confidential information?

You may be worried about the protection of your confidential information. How can it be protected? Berry Smith can provide help and guidance.

What is an NDA?

Non-Disclosure Agreements otherwise known as confidentiality agreements are legally enforceable agreements that are used to ensure that any commercially sensitive business information remains confidential after its disclosure. NDAs can be used for various arrangements but typically, they are used at the outset of discussions to protect any confidential information that may be disclosed by the parties prior to any potential subsequent agreement being entered into.

What is confidential information?

Essentially its anything that one party wants to keep confidential but can include information relating to:

• business methods and know-how;
• customer lists;
• financial information and pricing;
• computer software;
• product information;
• trade secrets;
• improvements to products or processes; or
• any information identified as being confidential.

Why do you need to protect your confidential information?

It is imperative that any access to confidential information is restricted and that confidential information is only disclosed under a legally binding confidentiality agreement that imposes obligations of confidence on the receiving party. That way, if such obligations are breached, the disclosing party would be able to pursue the receiving party for breach of contract and seek damages to that effect.

What are the key terms of an NDA?

Some common key terms include:

Definition of confidential information

The definition of confidential information needs to be sufficient to cover all the information intended to be protected by the disclosing party but should not be drafted so widely as to be unenforceable in court. However, simply describing the information as confidential will not furnish it with the necessary quality of confidence required for protection under the laws of England & Wales. Therefore, care needs to be taken to ensure the definition is drafted appropriately.

Permitted purpose

The disclosing party must carefully stipulate the permitted purpose for which the confidential information can be used, particularly when disclosing to potential competitors. The purpose must be drafted carefully to guard against the risk of unintended or undesirable use of the confidential information by the receiving party.

Indemnities

An indemnity is an advantageous clause in an NDA for the discloser of confidential information. It is a promise by the disclosing party to reimburse the discloser for losses arising from the misuse or unauthorised disclosure of confidential information. However, it is often contested by the receiving party on the basis the disclosing party already has remedies available via a breach of contract claim in the event of an unauthorised disclosure. If obtained, the indemnity can give rise to a claim for a debt, rather than damages, meaning the ordinary contractual rules of loss will not apply to the claim, a significant advantage for the disclosing party.

Ongoing obligations

Most NDAs will have a set duration identified within it. However, following its expiry it is likely that the parties will want to ensure that the information disclosed remains confidential and as such it is often appropriate for the obligations of confidence to survive the expiry or termination of the NDA. This is a key point to be aware of when negotiating and drafting an NDA as the appropriate length of confidentiality obligations will be client and sector specific, necessitating quality commercial legal advice from the outset.

Return of confidential information

This is a clause requiring the return or even destruction of confidential information at the end of the term or on request of the discloser is also common. This type of clause provides an extra level of protection for the discloser but can be resisted by a recipient on the basis it imposes a significant administrative burden in certain circumstances.

How are NDAs enforced?

Protected confidential information can be enforced against misuse. A successful claim could potentially result in an injunction, account of profits or inquiry into damages.

An injunction is likely to be available as the main choice of remedy if the claimants who are protecting the information become aware of a recipients intent to misuse or misappropriate the information. In such a circumstance, an injunction would prevent the use or disclosure of the confidential information. An interim injunction may be ordered by the court which would protect the information until the result of the trial.

What are the consequences of not having an NDA?

Not having an NDA in place can have severe consequences. Relying on informal trust between parties could be a mistake as it can open a company up to major risks. Without an NDA in place, there is a higher chance that valuable confidential information will be disclosed and placed in the public domain. This could result in for example,  losing the opportunity to patent an invention or trade secrets being lost. Moreover, if confidential information is disclosed by a receiving party and there is no underpinning legally enforceable NDA to rely on, this will result in difficult, time-consuming and expensive litigation to try to protect the information and recoup losses occurred.

Conclusion

The primary benefit of an NDA is of course, that it protects the secrecy of valuable business information. A properly drafted NDA will set out clearly the parties rights and responsibilities in relation to any confidential information. This is far better than having no NDA at all where it is unclear what confidential information is, how it is to be protected and the parties’ duties in relation that information. Such informal arrangements can lead to the discloser scrambling to piece together a breach of confidence claim in the event of an unauthorised disclosure of their confidential information.

If you have any queries or need any assistance relating to NDAs, please do not hesitate to contact us at commercial@berrysmith.com or on 029 2034 5511.