By Eashaan Agrawal
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What is a Non-Disclosure Agreement?
During the course of employment or business negotiations between organisations, there is often some exchange of sensitive information. This information is usually of importance and can be used unfairly by the employee or the business’ competitors, to gain advantage or solicit clients from the original company. In such situations, organisations often enter into agreements with either the employees or other organisations to ensure that the transferred information is kept confidential and not disclosed to anyone else – these agreements are called Non-Disclosure Agreements.
Why is a Non-Disclosure Agreement needed?
The
rationale behind entering into a Non-Disclosure Agreement is very simple. It is
to protect the interests of the organisation that is divulging information that
is not available in the public domain. This information may be of a sensitive nature
and include trade secrets, industrial design, lists of clients, prospective
business plans, etc. Now, this information may be divulged to the employee or
other organisation during the course of either employment or while exploring
business possibilities, and to protect this information from being disclosed
NDAs are used.
Usually,
a Non-Disclosure Agreement often defines what constitutes confidential
information, what is the duration for which information cannot be disclosed,
and in what cases information can be disclosed. It also defines the rights of
the parties and the remedies in case the party breaches the agreement, this
remedy can be monetary compensation (damages) or it can be restrictive in
nature i.e. stopping other parties from using that information (injunction).
What are the types of Non-Disclosure Agreements?
The type
of Non-Disclosure Agreement depends on the purpose. In case the information
being disclosed is one way, like in the case of the employer-employee
relationship, the NDA is unilateral in nature. In the case of organisations
where information is being received and disclosed by many parties, the NDAs can
be multilateral or bilateral depending on the number of parties.
What are the clauses in a Non-Disclosure Agreement?
In this
section, we will analyse the different types of clauses that are present in a Non-Disclosure
Agreement and what is the need for having these clauses. For better
understanding terms from a model agreement have been taken.
Typically,
a Non-Disclosure Agreement has the following clauses.
1)
Description of the parties: The NDAs should
clearly define the parties and their role in the agreement. For example, the
below given clauses clearly define the role of Party 1 and Party 2 and further
clarify the term used for the party disclosing the information and party
receiving the information.
Party 1 and Party 2 are hereinafter
referred to individually as a “Party” and collectively as the “Parties”.
Wherever the context requires, the Party disclosing the confidential
information shall be referred to as the “Disclosing Party” and the Party
receiving the confidential information shall be referred to as the “Receiving
Party”.
Whereas:
A. Party 1 engages in [__] and Party 2
engages in [__].
B. The Parties wish to collaborate and
enter into discussions for the purpose of [__] (“Purpose”) and wish to keep
such discussions confidential.
2)
Information that is subject to the Non-Disclosure Agreement: The contract should clearly define what constitutes confidential
information. This gives the parties an idea of what information can be shared
and what cannot. Further, it allows the parties to be cautious and avoid
unnecessary litigation. An example of this is:
1. “Confidential
Information” shall mean and include all non-public information, written or
oral, disclosed, directly or indirectly, through any means of communication or
observation (including oral, graphic, written or electronic form) by the
Disclosing Party or any of its affiliates or representatives to or for the
benefit of the Receiving Party from the Effective Date, irrespective of whether
such information: (a) has been specifically marked as “confidential” at the
time of disclosure; (b) is treated as proprietary information by the Disclosing
Party; or (c) is owned or developed by the Disclosing Party.
2. Confidential Information shall include
any financial, business, proprietary or technical information of the Disclosing
Party.
3)
Use of Confidential Information: The NDAs
should prescribe what the confidential information disclosed should be used for
and in what circumstances can the information be disclosed to another person. These
clauses also include the situation, were the information disclosed is required
in the court of law or by some agency empowered by law for investigation or
other purposes.
3. All such Confidential Information
shared under this Agreement shall be used by the Parties exclusively for the
Purpose and neither Party shall disclose or otherwise use the Confidential
Information for any other purpose or in any other manner without the prior
written approval of the Disclosing Party.
4. The Confidential Information shared
under this Agreement may be disclosed by the Receiving Party to other employees
on a need to know basis, with written consent from the Disclosing Party, in
connection with the Purpose, and who shall protect the Confidential Information
in accordance with the terms of this Agreement.
7. Notwithstanding anything to the
contrary contained in this Agreement, Confidential Information may be disclosed
as required by applicable law, regulations or governmental procedure, provided
the Receiving Party notifies the Disclosing Party prior to such disclosure,
unless prohibited by law, so as to afford the Disclosing Party reasonable
opportunity to object or seek an appropriate protective order with respect to
such disclosure.
4)
Information not subject to Non-Disclosure Agreement: The NDAs usually also specify which information is not subject to it.
This clause is meant to protect the rights of the receiver and to ensure he is
not unjustly subjected to liability.
6. The confidentiality obligations under
this Agreement shall not apply to Confidential Information which:
a. was in the public domain or generally
available to the public prior to receipt thereof by Receiving Party from the
Disclosing Party, or which subsequently becomes part of the public domain or
generally available to the public other than as a result of a breach of this
Agreement by Receiving Party;
b. was in the possession of Receiving
Party prior to receipt from the Disclosing Party;
c. is later lawfully received by
Receiving Party from a third party without any confidentiality restrictions
applicable;
d. is independently created or developed
by the Receiving Party without use or reference of the Confidential Information
of the Disclosing Party; or,
e. is required to be disclosed by
operation of applicable law
5)
The time period for the NDAs: The NDAs
depending on the nature of the contracts and information protected usually
specify a time duration for which the agreement applies after which the
information can be disclosed by the receiver without incurring any liability.
This is done to ensure that the discloser cannot unfairly ask the receiver to
keep the information confidential for an unreasonable period of time.
10. The Receiving Party shall, upon the
request of the Disclosing Party or upon the termination of this Agreement,
return to the Disclosing Party all Confidential Information, including
drawings, documents, reports and other tangible manifestations of Confidential
Information received by the Receiving Party pursuant to this Agreement,
together with all copies and reproductions thereof.
11. This Agreement shall be effective as
of the Effective Date and shall terminate on the delivery of written notice of
termination from either Party; provided, however, that the obligations of the
Receiving Party under this Agreement shall remain in effect for a period of
[__] years from the date of termination.
6)
Rights of the Parties and Jurisdiction: To
avoid unnecessary litigation and for the sake of convenience the NDAs specify
the jurisdiction that will adjudicate the dispute. Further, the rights of the
parties are also clarified, so that in future the receiver cannot claim any
right over the information.
9. No transfer of intellectual property
right either by way of assignment or license is either granted or implied by
the disclosure of Confidential Information to the Receiving Party. The fact
that Confidential Information is disclosed to the Receiving Party shall not be
deemed to constitute any representation, warranty or inducement by the
Disclosing Party of any kind (including of its accuracy or correctness) with
respect to the Confidential Information, including without limitation, which
such use will not infringe on intellectual property rights of any third party. — Rights of the Parties.
12. This Agreement shall be governed and
construed in accordance with the laws of India. The competent courts at [__]
India shall have the sole and exclusive jurisdiction over any dispute that
arises in relation to this Agreement. — Jurisdiction.
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Eashaan is a 2nd year law student at National Law University Delhi. A voracious reader, he loves to travel to new places and experience the culture of different places. His interests include Constitutional Law, Contracts and Law of Crimes.
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