Non-Disclosure Agreements (hereinafter referred to as NDA) are also known as Confidentiality Agreements, Proprietary Information Agreement or Secrecy Agreements under Indian Contract Law. NDAs, by conventional practice, have been signed between two parties, where either one or both the parties agree not to disclose confidential information that is described and specified in the agreement. The NDAs, in India are governed by the Indian Contract Act, 1872.
In general scenarios, NDA act as a prelude to subsequent business transactions, agreements or contracts. Hence, the purpose of NDA is to prevent divulgence of confidential information to a third party. In simple terms, two parties agree to share confidential information, while agreeing through an NDA to not to use that information in such a manner that could harm the other party’s interests. Also, it is helpful for the parties to understand and perform their privileges and duties better by writing it down in the form of an agreement. Also, the two parties entering into an NDA may not always be companies or organizations, two individuals, for example, an employer and his employee can also enter into an NDA. Also, an NDA can also be included as a set of clauses in an agreement, rather than being drawn into a separate document. This mainly happen in employment contracts.
NDAs are mainly categorized into three types:
- • Unilateral NDA
- • Bilateral NDA
- • Multilateral NDA
NDAs are used as an instrument to protect:
• Intellectual Property: There may be scenarios in which a party has to disclose their inventions or works, which are yet to be registered to another party for the purpose of business or partnership, etc. In this case, an NDA becomes an important instrument for protecting the intellectual property of a party. Similarly, there might be other situations arising which may result in a party disclosing information about an unregistered intellectual property to another party with an NDA, effectively protecting the IP rights of the owner.
• Proprietorship Information: This includes client lists/info, supplier contacts, contracts and agreements of the party, research and data, test results, product information, trade secrets, etc. All proprietary information is not confidential per se. The company has the right to decide which proprietary information they want to protect under the NDA.
How NDA should be drafted?
Taking into consideration that NDAs are important legal instruments, it should be drafted with outmost precaution. Generally, the clauses of an NDA agreement can be listed in the following manner:
• Description of parties – This clause contains the information on both parties and defines the positions on both parties as disclosing party and receiving party respectively. Usually the party providing the information is termed as ‘Disclosing party’ and vice-versa.
• Definition of Confidential Information – This clause defines the term ‘Confidential Information’ for the purpose of the agreement. It properly defines the information that is being shared and also states the mode of sharing. It also provides the details of ownership of the information. It is advised that the definitions provided should be specific rather than broad and generic to avoid conflicts. Also, information available in the public fora or already in the knowledge of the receiving party shall not be considered as Confidential Information.
• Exceptions to Confidentiality Clause – This clause lays down the exceptions when the information agreed to be confidential shall not be considered confidential. These exceptions include:
a) Information which is or becomes publicly available without breach of this Agreement
b) Information which becomes lawfully available to either Party from a third party free from any confidentiality restriction.
c) Information which is required to be disclosed under any relevant law, regulation or by the order of a competent court.
d) Information which was previously in possession of the Receiving Party prior to the NDA agreement and which was not acquired directly or indirectly from the Disclosing Party
• Use of Information Clause or Confidentiality Obligations on Receiving Party– This clause demarcates the actions that the receiving party can take in regards to the confidential information. It actually depends on the owner of the information. If the owner feels necessary that the receiving party needs to access to every piece of the information shared, he may grant that or he may limit the criteria for usage of the information.
• Related Rights - These clauses generally follow the obligations and include clause like non-competence clause, assignment of Intellectual Property rights clause, etc. It can also include Restraining provisions like No-solicitation clause or the No-warranties clause. It also includes the Return clause, which provides the obligations that the receiving party has to return the information provided while maintaining its confidentiality.
• Termination of NDA/Duration of NDA - The duration of the NDA may vary from the actual duration of the contract; hence a properly defined term/period should be provided for the NDA to be effective.
• Jurisdiction - It provides the jurisdiction of the court of that should be approached in case of a breach of NDA. Example
• Remedies – It provides that in case of a breach of the agreement, the aggrieved party has a right to legal remedy and may proceed in a certain prescribed manner. It can also prescribe for the matter to be put for arbitration before approaching a competent court.
The disclosing party may also keep a provision for application for reliefs such as injunction or specific relief.
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