What is a Confidentiality Agreement or a Non-Disclosure Agreement?

A Confidentiality Agreement — also called a Non-Disclosure Agreement or NDA — is one of the most commonly used contracts in business, and one of the most important tools for protecting your confidential information before it leaves your hands. If you’re an inventor, entrepreneur, or business owner sharing sensitive information with employees, contractors, partners, or potential investors, an NDA is often your first line of defense.

What an NDA Does

An NDA is a contract between two or more parties in which one or both parties agree to keep certain information confidential. In exchange for receiving confidential information, the receiving party agrees not to disclose it to third parties for a defined period of time. NDAs are commonly used when parties want to explore a potential business relationship — a licensing deal, a joint venture, an acquisition, or a new product development arrangement — without exposing their proprietary information to the public or competitors.

What a Well-Drafted NDA Should Cover

Not all NDAs are created equal. A well-drafted agreement should clearly address:

• Definition of confidential information: What exactly is covered? Vague definitions create loopholes. A good NDA defines confidential information broadly enough to protect your interests while being specific enough to be enforceable.
• Obligations of the receiving party: What can they do with the information? What are they prohibited from doing? Can they share it with employees or contractors? Under what conditions?
• Exclusions from confidentiality: Standard exclusions include information the receiving party already knew, information that becomes publicly available through no fault of theirs, and information they independently develop. These are legitimate exclusions — but the language matters.
• Duration: How long does the confidentiality obligation last? This varies by industry and the nature of the information — trade secrets may warrant longer protection than a product concept under development.
• Remedies for breach: What happens if the receiving party violates the agreement? A well-drafted NDA should address injunctive relief and other remedies to give you real leverage if the agreement is breached.
• Unilateral vs. mutual: Is only one party disclosing confidential information, or are both parties sharing? The structure of the agreement should reflect the actual relationship.

A Word of Caution About Template NDAs

It’s easy to find NDA templates online, and I understand the appeal — they’re free and fast. The problem is that you never really know how good a template is until it’s tested in a dispute, and by then it’s too late. I’ve seen template NDAs with definitions so narrow they barely protect anything, and others with terms so one-sided they would be difficult to enforce. Having an attorney draft or review your NDA before you sign or distribute it is a modest investment that can save you significantly down the road.

An Important Limitation: What an NDA Doesn’t Do

There are a few important limitations to be aware of:

• Information the other party already knows: If the receiving party already had the information before you disclosed it, the NDA won’t make that information confidential. This is a standard and legitimate exclusion.
• Information that becomes public: If your confidential information becomes public through you, another source, or through the receiving party’s breach, the NDA’s protection is limited once the information is out.
• Patent applications: This one is particularly important for inventors — anything disclosed in a published patent application becomes public information. Once your patent application publishes (typically 18 months after filing), that information is no longer confidential regardless of any NDA. This is why the sequencing of NDA use and patent filing strategy matters.

Need an NDA Drafted or Reviewed?

I can draft a customized NDA tailored to your specific situation, or review an agreement someone has asked you to sign. Schedule a consultation today — the initial $250 fee is credited toward your work if you move forward.

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