The Imagery of telling your darkest secrets to a person you cannot trust is created. Alternatively, the tomography is created of giving out your most vital information to anyone of which you cannot risk a third party coming into contact with. Such instances call for extra vigilance and safeguards on how the person receiving the information will make use of it.
These happen in businesses too where there are instances where some company or business information must be let out to outsiders (or third parties) of the business but same cannot be given out any further by the recipients of the information since that may cripple the business or that may lead to the dissemination of vital information of the business or entity and may result in some form of loss.
A means of ensuring that persons who come into contact with vital information do not let them out is through the use of Non-Disclosure Agreements (NDA’s). They are sometimes termed as Confidentiality Agreements.
By way of definition, a non-disclosure agreement is a form of a legal contract that exists between/amongst at least two parties which sets out matters deemed confidential such as knowledge, information or even material where parties are willing to exchange or give out to the other but seek to restrict its access by third parties.
Principally, NDA’s are used in business settings where a party seeks to give out some valuable information about the business or an idea of the business but still seeks to safeguard the information given out such that it shan’t be used for a different purpose by the other party without the consent of the owner of the information. Typically, it is most relevant in a setting where an invention is being presented to another party, a trade secret is being revealed to another party, sharing financial information with a prospective buyer or investor, or even giving out details of a new technology to a prospective investor or client.
An NDA could take two forms. It can be mutual or non-mutual. A mutual NDA is best suited in instances where both parties have confidential information they will share with each other of which they won’ts want each party to make an unlawful use of such information. In those instance the parties may execute a mutual NDA preventing each other from the unlawful use of the information they come across with during the course of the business. The reverse is the non-mutual NDA which is a one-sided agreement. With this, the parties to the agreement contemplate that only one side is seised with confidential information of which the other party is mandated to keep it as confidential.
For contracting parties who seek to make use of a Non-Disclosure Agreement or clause in their contracts, five fundamental matters must be considered and properly addressed to ensure that a watertight non-disclosure agreement has been crafted by the parties. These are the identification of the parties, the definition of what should constitute a confidential matter, the scope of the confidentiality obligation by the party receiving the information, exceptions or exclusions to the confidential arrangements and the term of the agreement.
Regarding the identification of the parties, the parties to the contract must indicate with much particularity who must or will be affected by the NDA. In a non-mutual NDA, the party relaying confidential information must describe itself as a disclosing party and the other party to make use of the information must be deemed as the recipient. Where it is anticipated by the parties that the recipient may in the course of its work, make available the information to some third parties, those third parties must be covered under the agreement.
Further, on the definition of what must be deemed as confidential, it always poses as a challenge between the parties. The disclosing party will always seek to obtain the widest scope of definition as possible so as to safeguard its interest. The recipient on the other hand will seek the narrowest scope possible which is properly defined so as not to be tied down. The parties must always find the appropriate compromise where all their interests are covered. Of a particular interest for the parties are oral information given out which parties seek to construe as confidential. Often parties insist that only matters which are communicated in writing must be deemed as confidential. Where information given out orally is classified as confidential, it is prudent that the disclosing party reduces it into writing and designates it as confidential to prevent ambiguity.
On the scope of confidentiality, many NDAs assert two facets namely that the recipient must keep the confidential information in fact confidential and the recipient must not use that information in anyway unless authorized by the disclosing party. These obligations then impose on the recipient the duty to keep the information given under lock and key and to take such reasonable steps from it falling into the hands of third parties and from the recipients making use of the information themselves.
Notwithstanding the fact that recipient of confidential information holds an obligation not to disclose to third parties, the burden of confidentiality must not be too onerous as to weigh on the head of the recipient. Thus, certain matters are often excluded from the scope as to be kept confidential. Information already known to the recipient of the information, information already in the public domain, or information which is made known to the recipient from a different party who holds no duty to the disclosing party, may be excluded from which the recipient will hold no duty to maintain such information as confidential. In the event of legal proceedings also, a recipient may be ordered by a court in certain instances to make a disclosure of matters which may otherwise be confidential of which the recipient may have no option than to disclose. Such an instance also will form an exclusion to the duty imposed by the NDA.
Lastly, for how long the obligation to keep the confidential information must persist is also very vital. The disclosing party certainly will insist on having the information kept in perpetuity. However, that may not be practical. Some information may lose its relevance only after a period of which demanding to keep it in perpetuity will not be practical. For how long the confidentiality will persist must depend on the industry the parties find themselves in and what is reasonable in the circumstances.
When a non-disclosure agreement is validly in force, a breach thereof will lead it to be enforced just like any contract where the innocent party can validly assert its rights thereunder and may seek damages or for an injunction to prevent the continuous breach where necessary.
The effectiveness of a Non-Disclosure Agreement lies in the understanding of it and its proper use in the circumstances.
KWEKU ATTAKORA DWOMOH, JUNIOR ASSOCIATE, LAW PLUS