For many businesses, the protection of their intellectual property (IP) is essential to staying in business or even getting a venture off of the ground. Although companies need to be able to protect their IP, there are numerous instances in which a business will need the freedom to disclose confidential information about the way their business functions or about a product they produce. You will need to be able to share that information when you work with outside contractors, seek to raise funds (whether equity or debt), and hire employees.
In those contexts, a non-disclosure agreement (or NDA), is your best friend. Using a well-drafted nondisclosure agreement will allow you to share your confidential information with the peace of mind of knowing that the recipients can’t use it for their own benefit (or share it with anyone else). Below is some basic information about NDAs and how they may be used.
What Are Non-Disclosure Agreements?
A non-disclosure agreement is a contract that creates a legal obligation for a party that received confidential information to refrain from disclosing the confidential information to third parties. Although it is possible for an NDA to restrict only the disclosure of the information to a third party, nearly every agreement will also include a non-use clause. A non-use clause prevents the receiving party from using the confidential information for its own use. If you are using an NDA to protect your IP, you should be absolutely sure it includes a non-use clause as well as a confidentiality provision.
When Are Non-Disclosure Agreements Useful?
Non-disclosure agreements are used in a variety of situations in which one party can benefit from disclosing information but needs to ensure that the information will not be misappropriated. Some of the more common scenarios in which NDAs are used include the following:
- When two or more businesses are considering a joint-venture, and determining the feasibility of that venture requires sharing information about the way in which each business operates;
- When an employer would like to hire an employee who would need access to confidential information and disclosure of that information would be financially harmful to the employer;
- When a business would like to subcontract certain tasks to another company, and accomplishing those tasks requires access to confidential information; and
- When a company solicits consulting services from another company and the consultant needs to obtain confidential information.
Be Wary Of “Boilerplate” Non-Disclosure Agreements
With the advent of the Internet, you can find templates for non-disclosure agreements without too much work. You should be careful about using these fill-in-the blank templates. Although a generic agreement may serve your purposes, there will certainly be situations in which you will need something more tailored to your particular circumstances. You may start with a generic form but need to change it to suit your needs. Your best bet will be to take the time to consult with an attorney to make those changes and to ensure that the agreement serves the purpose you have in mind.