A Non-Disclosure Agreement (NDA) is an agreement in which one or more parties to an agreement agree not to disclose the confidential information specified in that agreement. These agreements are also known as a Confidentiality Agreement.
In execution of non-disclosure agreement, the names of the owner of the information, the recipient and the reason for handing over the information — the permitted purpose are given. It also defines what the information is, and it says that records of the information (which may be documents or drawings or software) should be marked “Confidential” or “Proprietary”.
Non-Disclosure Agreement deals with the provisions which deal with penalties imposed on the contracting party who discloses the information which was supposed to be kept confidential. The one who breaches with the NDA are prescribed punishments in the form of compensation. They have to bear the damages caused. This issue can also be brought to the court where they can receive an injunctive relief. This would prohibit the recipient from disclosing such information any further so as to prevent breach of non-disclosure.
NDA helps the parties to accommodate or to adapt their obligations well. It helps them to understand when the obligations do not apply and when they would terminate.
TYPES OF NON-DISCLOSURE AGREEMENTS
• Unilateral NDA: It involves two parties, out of which only one party discloses certain information to the other and expects that the information is prevented from any further disclosure.
• Bilateral NDA: It involves two parties, out of which only one party discloses certain information to the other and expects that the information is prevented from any further disclosure.
• Multilateral NDA: It involves three or more parties to the agreement, out of which one of the parties discloses the information to other parties and wishes to have that information protected from any further disclosures. These types of NDAs also eliminate the need for distinct unilateral or bilateral NDA.
NON DISCLOSURE AGREEMENTS UNDER THE LAW
Under the laws of India, NDAs will be governed by the Indian Contract Act, 1872. These agreements have been held to be not “restrictive agreements” as under Section 27 of the Act, and are hence, valid. [See 2008 (2) BomCR 446; 2006 (32) PTC 609 (Del.); 1995 (35) DRJ 335]. To identify confidential information or trade secrets which are capable of protection in an industrial or trade setting, four elements are deduced in Thomas Marshall (Exports) Ltd. v. Guinle [(1978) 3 All ER 193, 209-210]:
1. The information must be information, the release of which the owner believes would be injurious to him or of advantage to his rivals or others;
2. The owner must believe that the information is confidential or secret, i.e. that it is not already in the public domain;
3. The owner's belief under the two previous heads must be reasonable;
4. The information must be judged in the light of the usage and practices of the particular industry or trade concerned.
The fundamental principles of the law of confidence are set out in Copinger and Skone, James on Copyright, as follows:
“… There is a broad and developing equitable doctrine that he who has received information in confidence shall not take unfair advantage of it or profit from the wrongful use or publication of it. He must not make any use of it to the prejudice of him who gave it, without obtaining his consent or, at any rate, without paying him for it…” [Copinger and Skone, James on Copyright (12th Edn., Sweet and Maxwell, London) para 711; Fraser, (1983) 2 All ER 101].
IMPORTANT CLAUSES IN NON-DISCLOSURE AGREEMENTS
• Duration: The period for which NDAs are made to be maintained. The duration of time for which the recipient of the information is expected to hold the secrecy of that information. This period includes the day when NDA comes into effect till the time it expires due to completion of the contract.
• Confidential Information: This part of NDA specifies that which part of the information has to be kept secret or confidential. Usually, such information is detailed in a schedule and attached to notices sent by email. This mechanism may be specified in the agreement..
• Duties and obligation of the parties to NDA: The contract usually clearly states the responsibilities and obligations of the parties. For example, the party may be required to use a particular kind of encrypted mechanism for communication or may be urged to mark any information meant to be covered by the agreement as “confidential”, etc.
• Consequences of breach of an NDA: What would be the consequence of breach of confidentiality? This must be specified in the contract. Heavy financial penalties may not work in an Indian scenario, though it is often added for psychological impact. However, getting an indemnity for all losses suffered due to a breach is usually sufficient.
• Right to seek an injunction in an NDA: It is often specified in such contracts that monetary compensation alone cannot compensate losses arising out of the breach and that the parties are agreeing to this in the contract itself. This is done so that a party apprehending a breach can reach out to a court and get a stay easily. It is a common practice though the efficacy is doubtful.
• Dispute Resolution clause in an NDA: It is important to resolve all disputes arising out of the agreement quickly and cheaply so that cost of enforcing the contract remains low. Jurisdiction Clause in an NDA is also important.
WHEN SHOULD NON DISCLOSURE AGREEMENTS BE USED?
• NDA clauses in contracts: It is a practice that an NDA clause is inserted into all and sundry contracts as a part of special precaution. Unless a part demands its removal, it generally stays. It helps both parties on the whole, as business details have to be treated with caution and can’t be leaked to media, etc., without a doubt even when conflict arises in the course of doing business.
• NDA to protect trade secrets: We often advocate signing a trade secret non-disclosure agreement when trade secret requires protection. It is not yet a practice in India but a very useful step. Top executives and employees should be made to sign such agreements. It goes a long way in preventing them from jumping into business with the same information and competing with the former employer.
• IPR: Nowadays one of the most useful and valuable properties owned by a company is the Intellectual Property Rights. These properties or assets could also meet debts, commitments or legacies. Companies take , aperiodappropriate steps to protect their Intellectual Property Rights and also to make use of that property efficiently.
• NDAs between Individuals: A non-disclosure agreement (NDA) is a written contract in which two parties, the Disclosing Party and the Receiving Party, agree not to disclose certain proprietary or confidential information explicitly outlined in the agreement. The Disclosing and Receiving Parties can be individuals, trying to keep certain information confidential.
By Shiv Mangal Sharma
Advocate Supreme Court