10 Reasons Why You Need A Strong Confidentiality Agreement

Are you thinking of discussing your business with a third party?  Will you be divulging confidential information, be it trade secrets, financial information or business processes?  Before you do so, make sure you have a confidentiality agreement in place.   This is also commonly referred to as an NDA or non-disclosure agreement.

Sound Counsel provides clients with two template NDAs free of charge. These templates can be completed by you and reused with the aid of the accompanying drafting notes. The first NDA is a one way or unilateral NDA where you disclose confidential information to a third party.  The second is a mutual NDA where both parties disclose confidential information to the other. To obtain either or both NDAs and accompanying notes please email me at mark@soundcounsel.co.uk.

Here are 10 reasons why a good NDA is required:

1.  Protecting your assets.  In the modern world, information is key and is one of our most valuable assets.  It needs to be safeguarded but sometimes it can’t be legally protected such as by way of a patent or copyright.  A well drafted NDA will protect the confidential information being disclosed.  This may include information relating to business operations, customers, suppliers, plans, processes, product information, know-how, trade secrets or software.

2.   Obligation to keep the confidential information secret. The NDA creates a contractual obligation to keep the confidential information secret.  This avoids any dispute over whether the recipient was on notice that the information was being disclosed in confidence.  This makes it easier to enforce a claim rather than relying on the general law which would be less certain and would be more expensive.

3.  Controls the use of the confidential information. The party to whom the confidential information is disclosed is only permitted to use it for a “permitted purpose”.  This may be analysing whether to enter into a further development agreement or assessing whether to enter into a joint venture.  The recipient is therefore prevented from using the confidential information for any competitive reason.

4.  Limits the disclosure of confidential information. The NDA requires that a recipient of confidential information only discloses the confidential information to its employees and representatives on a need to know basis.  Before doing so, the recipient must advise them of the confidential nature.  Those employees and representatives are then themselves subject to a non-contractual obligation of confidentiality.

5.  Confidential information is kept secure. The NDA stipulates that the parties must ensure that there are adequate security measures in place to protect the confidential information.

6.  Protects the ownership of the confidential information. The NDA will ensure that ownership of the confidential information will remain with the disclosing party and that no rights will be granted to the other party other than those expressly set out in the contract.

7.  Benefit of an indemnity. You are given an indemnity (a strong legally binding promise) by the recipient for all losses arising from a breach of the NDA.

8.  Protects against claims for misrepresentation or breach of warranty. The NDA specifically states that the recipient is not to place any reliance on confidential information and that no warranty is given regarding the completeness or accuracy of the confidential information.

9.  Relationship of the parties. The NDA will ensure that the parties do not inadvertently create any legal partnership or agency arrangement between them.

10. Confidential information returned or destroyed. Once the NDA has terminated, for example if the project does not proceed, the parties are required to return or destroy the other’s confidential information.

Mark Roberts

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