An insight into Non-Disclosure Agreements

A Non-Disclosure Agreement (“NDA”), also known as a Confidentiality Agreement, allows a business to share its valuable trade secrets, ideas or business information with prospective strategic partners or investors.

Given the amount of time and resources that businesses put into growing and developing their products/services and customer bases, ensuring that key information remains confidential when looking to collaborate with others can be critical.

NDAs require the recipient of confidential information to make certain promises to the discloser of such confidential information about how they will treat what is disclosed.

Confidential information which can be protected by an NDA includes information which does not fall within the remit of public knowledge and is only known by a limited number of people. This often includes data such as customer lists, know-how, formulas, product information, a method or trade secrets.

Common obligations include:

1. Keeping the information secret and confidential;
2. Not sending the information to any person except as expressly permitted by the NDA (usually key employees and professional advisers are permitted persons);
3. Only using the information for the purposes for which it was disclosed (i.e., if the information was provided to a competitor business in relation to a potential joint venture, the competitor cannot use the information to gain a competitive advantage in the market that they both operate in);
4. Notifying the disclosing party about an actual or suspected breach of the NDA; and
5. Destroying or returning all the information provided when requested by the disclosing party.

If the recipient of confidential information breaches the terms of the NDA, as with any contract, the disclosing party can claim for damages.

Whilst an NDA is essential for most businesses when entering commercial discussions, if the NDA is breached, the recovery of losses/damages can be difficult. The disclosing party will need to prove that there was a breach and that the breach caused a quantifiable loss. It can be difficult to prove that confidential information has been disclosed by the other party (as there may be other ways it can be leaked into the public domain) and some losses suffered, such as reputational damage or loss of profits, can be hard to prove. However, if a party suspects that confidential information may be disclosed in breach of the NDA, they can apply to the court for an injunction preventing such disclosure. In any event, having an NDA in place is crucial to ensuring a business is comfortable to disclose information to third parties.

When you are considering sharing information with counterparties in a commercial context, pause and consider the consequences if this information was leaked or used by them in a way that would negatively impact your business. An NDA provides you with a legal mechanism to stop unauthorised disclosure and maximise your chances of making a successful damages claim.

If you need an NDA please contact our commercial team on 0161 832 3434.