Non-disclosure agreement or ‘confidentiality agreement’ is an agreement wherein the parties agree to keep any information shared as confidential. These NDA agreements are governed by the Indian Contract Act, 1872 and are thereby legally binding. Typically speaking these agreements lasts for 2-5 years but corporate companies may enter into a non-terminating NDA so as to protect the trade secrets permanently.
There is a distinction between Non-Disclosure Agreement and Non-Compete, the former prohibits an individual from releasing the information to the competitor whereas the latter does not allow an individual to be employed by a competitor in addition to the obligation of not releasing the proprietary information to the competitor.
The two common remedies available when there is a breach of NDA are: injunction where the court stops the confidential information from spreading and monetary compensation.
A generic or standard NDA refers to a basic and standard form of an NDA which can be used by various independent contractors, businesses, startups, companies, partnerships etc in order to protect their proprietary information. A typical NDA template contains the following headers and information:
- Names of the disclosing and receiving parties, here disclosing party reveals the confidential information and the receiving party is required to not reveal it.
- Definition and scope of confidential information, it can be both written and oral; in the former the disclosing party shall stamp or label it as confidential information and in the latter the disclosing party must state in writing that the oral communication is a part of confidential information.
- Exception to confidential information, these can be those information which are already available in public domain or already known to the receiving party with the prior approval of the disclosing party.
- Obligations of the receiving party, not to disclose to any third party, not to use to one’s own benefit, and to return all the documents, papers etc to the disclosing party later.
- Time periods, the non disclosure provision of the NDA applies only until the time period stated in the agreement or if the disclosing party releases the receiving party from the agreement.
There are three types of time periods usually employed in an NDA; an indefinite period that terminates when the information is no longer a trade secret; a fixed period of time; or a combination of the two.
Here, the NDA can be used to protect a variety of confidential information apart from ideas and intellectual property rights such as processes of manufacturing, chemical, physical etc, business strategies, designs blueprints, formulas, computer software, customer lists, physical devices and know-how. Also, in a generic NDA there must be some spotlight shed on the relationship between the receiving and the disclosing party, it can be that of a employment, licensing, investment, partnership or a joint venture. The severability clause gains importance in the cases where the matter reaches the courts due to some conflicts or dispute, in such a case the if the court rules one part of the NDA as invalid still the rest of the agreement remains valid and still applicable, thus this avoid the chance of whole agreement being invalid just because one of the provisions became invalid.
The waiver provision serves as a chance to sue the other party for the breach of an NDA later than the actual time period when the breach happened. Thus, in this manner your right to sue is still open and can be used when needed.
Mutual NDA refers to those situations wherein each side may share the confidential information among themselves in an effort to create an end product or service. These are also called ‘bilateral NDA’ and both the parties are legally bound to the non-disclosure and will be held financially and legally liable for any breach. These type of NDA prove to be beneficial when both the parties need access to each other’s confidential information, some examples are partnerships, mergers, projects etc.
NDA for Startups
Whether it is for startups or for others, the major asset of any corporate body is its intellectual property rights, therefore all startups must have a standard NDA which will be helpful in protecting their proprietary information about their company. The crucial aspect is to use them wisely and not to fall in the trap of using them too broadly and too often. There is a rule prevailing that the venture capitalists do not sign NDA when receiving pitches from the startups, since there are a lot of floating ideas and pitches, therefore demanding a VC to sign an may not be a good idea.
NDAs need to be drafted efficiently and hence, it is advised that you hire a legal professional to draft a NDA. Signing a NDA without getting it reviewed from a lawyer is also a strict-no. Always consult a lawyer before you enter into a NDA.