Opinion

Unless you’re an elite fighter pilot, chances are you don’t have to worry about hiring a hit man to ‘clean up’ after unauthorised disclosures of classified information.  However, as a business owner or entrepreneur, you may be worried about the risk of disclosing confidential information to employees, independent contractors or joint venture partners. So how can you protect yourself?  The answer is the good old Non-Disclosure Agreement or “NDA” for short (sometimes known as a Confidentiality Agreement).

NDAs are commonly used, but like any legal document, you need to know what you’re entering into before you sign.

A Brief example

I have recently prepared an NDA for a client who is looking at developing a mobile app and wanted to discuss aspects of its design with a developer.  The NDA creates a confidential relationship between my client and the developer and sets out the terms on which the confidential information (in this instance the ‘idea’) can be used or disclosed.  Essentially the NDA stops the developer from disclosing the idea to anybody else, or from using the idea in any way which is (directly or indirectly) detrimental to, or in competition with, my client’s interests (for instance developing a competing App). 

The NDA means my client can discuss the App with the developer with the confidence that his idea will stay a secret.  You only need to look at the Winklevoss Twins/Mark Zuckerberg Facebook saga to see how things can go wrong if you don’t have an NDA.

So, what’s in an NDA?

Along with standard contract terms, an NDA usually includes the following:

• A clear definition of “Confidential Information”. 

In many ways this is the most important part of the NDA.  A clear definition avoids confusion and reduces the risk of a ‘recipient’ claiming certain information wasn’t covered by the NDA. 

You can either have a very wide definition, for example one that covers all information, data and know-how which is disclosed to the Recipient by the Discloser or you can have a very specific, narrow definition i.e. by reference to specific business plans, source codes, products or concepts.

Your definition will usually also include a description of what information is not considered confidential, usually information which is already in the public domain.

• Details of the receiving party’s obligations.

This usually includes agreement by the Recipient not to disclose the Confidential Information without the written consent of the Discloser, or use the Confidential Information for any purpose other than for which the information was provided.  An NDA will also provide that the Recipient will ensure any employees or agents of the Recipient are bound by equivalent duties.

• An obligation to keep the information secure and to return or destroy the information when directed to do so by the Discloser.

Rather than having a separate NDA, confidentiality clauses are often included in other documents, most commonly employment contracts.

As a Recipient, should you sign an NDA?

It is likely that at some point during your life you will be asked to sign an NDA or an agreement containing a confidentiality clause.  Before you sign, carefully read the NDA or confidentiality provision and be certain you can fulfil your obligations under it. 

Interestingly, many large organisations (think Samsung large) won’t, as a matter of course, sign NDAs, because they cannot guarantee other areas of the business won’t be doing something which might breach the terms of the NDA.  This is because in big businesses it is not practical for the left hand to always know what the right hand is doing.

NDAs are a simple but effective way of keeping your secrets secret, ensuring you stay “the best of the best”.

The content of this post is necessarily general  and readers should seek specific advice on particular matters and not rely solely on this post. The advice given in this post is based on New Zealand law only.