Table of Contents
- Download a Free Non-Disclosure Agreement Template (Word & PDF)
- What is a Non-Disclosure Agreement (NDA)?
- CDA vs. NDA: The Difference Between a Non-Disclosure Agreement and Confidentiality Agreement
- Protecting Trade Secrets
- The 2 Types of NDA Forms: Mutual and Unilateral
- When Do You Need to Sign an NDA?
- The Consequences of Not Using An NDA Agreement
- What Should be Included in a Standard NDA?
1. Download a Free Non-Disclosure Agreement Template (Word & PDF)
The free Non-Disclosure Agreement PDF sample below details an agreement between “The BIG Company” and an incoming employee, “David Moore.” David Moore agrees not to disclose any information regarding The BIG Company’s marketing documentation, reports, strategies, designs, customer relationships, and business plans for the future.Non-disclosure-agreement-sample
2. What is a Non-Disclosure Agreement (NDA)?
A Non-Disclosure Agreement 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, companies, or entities.
The Most Common Relationships
Possible Disclosing Parties
Possible Receiving Parties
|Entrepreneur||Venture Capitalists (VCs)|
After signing an NDA, both the Disclosing Party and Receiving Party mutually agree that:
- certain information is sensitive, technical, or valuable for commercial or other purposes, and
- they won’t use or disclose the protected information with anyone.
The NDA allows both parties to safely discuss and explore the possibility of entering into a business relationship with each other without fear of having sensitive information leak.
3. CDA vs. NDA: The Difference Between a Non-Disclosure Agreement and Confidentiality Agreement
Depending on the region or industry, an NDA may be referred to as a:
- Confidentiality Agreement (CA)
- Confidential Disclosure Agreement (CDA)
- Proprietary Information Agreement (PIA)
- Secrecy Agreement (SA)
But is there really any difference between these various agreements? The short answer is no, not really.
In both of the following scenarios, people are simply signing non-disclosure forms:
- A software company asks an investor to sign a secrecy agreement
- A Fortune 100 company asks all new employees to accept the terms of a confidentiality agreement before being hired
Regardless of what you call them, confidentiality and non-disclosure agreements both attempt to legally protect sensitive information like trade secrets from being leaked to a third party.
4. Protecting Trade Secrets
All successful businesses, from simple mom-and-pop diners to international corporations, have proprietary information that enabled them to thrive. Proprietary information (also known as a trade secret) is any type of information that a business wants to keep confidential in order to maintain an advantage over the competition.
- For a mom-and-pop diner, it might be their secret fried chicken recipe — passed down for generations — which has kept them in business all these years.
- For an international corporation, it might be an unconventional advertising strategy which boosted their foothold in foreign markets.
When an individual or business interacts with another party, the key to protecting their trade secrets is a legally binding Non-Disclosure Agreement.
5. The 2 Types of NDAs: Mutual and Unilateral
There are two main types of Non-Disclosure Agreements.
Unilateral (One-Way) Non-Disclosure Agreement
This document has the following characteristics:
- Only one party discloses valuable information
- Only one party promises to protect the information
- Example: An inventor wants to protect valuable proprietary information about her invention to an investor. The investor, having none of his own information to protect, would sign a unilateral NDA.
Mutual (Two-Way) Non-Disclosure Agreement
Also known as a bilateral NDA, it has the following characteristics:
- Both parties disclose valuable information
- Both parties promise to protect the information
- Example: Two companies exploring a merger need to share sensitive financial information that could be devastating to both companies if leaked. Both companies need to protect their sensitive information, thus they’d sign a mutual NDA.
6. When Do You Need to Sign an NDA?
While the goal of a Non-Disclosure Agreement is to protect two parties engaging in a business relationship, understanding when an NDA is truly required can be tricky.
Situations that Call for a Non-Disclosure Agreement
Non-Disclosure Agreements are tailored for specific scenarios. The following examples cover a few of the most common situations which call for an NDA:
Companies use an employee NDA when it’s essential that employees be forbidden from sharing sensitive business information, except when appropriate. By signing, employees will acknowledge that doing so would constitute a breach of their contracts.
Companies use an interview NDA when it’s necessary to reveal confidential information in order to attract employees, usually high-level ones, and it should be signed before the job interview.
Inventors use this type of NDA to protect their unpatented inventions. If it’s necessary to share information about the invention to other engineers, investors, or even family members, it’s important that the inventor can ensure the third party won’t share or steal the information.
Real Estate NDA
Real estate owners and agents use this type of NDA to protect the buyer, seller, broker, and anyone else involved in a property transaction. As real estate sales involve the disclosure of significant personal and financial information, having an NDA ensures privacy and also prevents the involved parties from brokering secret deals, or leaking sensitive material to competing property owners.
Trade Secret NDA
Companies should use this type of NDA when they need to disclose their trade secrets to third parties without fear of theft. Protected trade secrets could include information such as special formulas, practices, instruments, software, technical designs and blueprints, and customer lists.
An NDA helps safeguard any trade secret, even unique and unusual ones. The following examples can all be covered by NDAs:
- Documentary Film
- Advertising Agency
- Website Development
- Visitor or Factory Tour
- Bachelorette / Bachelor Party (Yes, seriously.)
- TV Production
- Software Development
Should You Sign an NDA?
If you find yourself being asked to sign an NDA and are unsure how to proceed, do the following 5 things first:
1. Understand the NDA’s scope: Study and answer the following questions before signing.
- What type of information are you required to keep confidential?
- What steps must you take to keep it confidential?
- How long will the NDA last?
2. Look for broad language: Be wary of language in the agreement that doesn’t relate to information you already have personal or public knowledge of. Otherwise, you’ll handcuff yourself and open yourself up to greater liability.
3. Check for a liquidated damages provision: If you see a liquidated damages provision, run. This provision ensures that if you breach the NDA, the company or employer will be entitled to a specific amount of damages — without needing to prove you caused actual damage to them.
4. Understand the consequences of breaching it: Check if there are any unusually harsh or unfair punishments in the event you breach the NDA. If the punishment is disproportionate to the breach, hold off on signing
5. Try to negotiate: You can always ask to modify the document if you find something you think is unjust or out of place. It can’t hurt to ask.
7. The Consequences of Not Using an NDA Agreement
Without a valid Non-Disclosure Agreement, someone else may make money off of your once-in-a-lifetime idea, or exploit valuable confidential information.
For both Disclosing and Receiving Parties, there are a few major consequences:
Lost opportunity cost for:
- Fame or name recognition
- Future viable business
Expensive lawyer fees due to:
- Engaging in a legal battle
- Seeking or responding to remedies for unlawful use or disclosure of protected information
- Suing for or responding to allegations of trade secret misappropriation
Mental anguish due to:
- Having your idea stolen and monetized by another
- Being embroiled in a drawn out lawsuit
As a legally enforceable agreement, an NDA can help alleviate your concerns that someone will leak your confidential information, or use that valuable information for their own economic advantage.
Real-Life NDA Examples
Check out these real-life examples of how Non-Disclosure Agreements have kept information secure (or how the lack thereof has done the opposite).
- Coca-Cola: Coca-Cola possesses one of the world’s most famous and sought after trade secrets, the recipe for Coke. The recipe is only known by two employees at the same time, and is guarded in an Atlanta bank vault. Both employees have signed extensive NDAs to safeguard the recipe and their identities, ensuring Coke maintains its monopoly in the soft drinks market.
- Hotmail: Hotmail founder Sabeer Bhatia’s collection of over 400 NDA contracts in a two-year span is believed to have been a critical step in providing Hotmail with a six-month headstart and a competitive edge in the high-tech market, leading to a $400 million dollar payday for Bhatia.
- Facebook: The Winklevoss twins accused Facebook founder Mark Zuckerberg of stealing their business model and brand after working on their software “UConnect.” If they had asked their UConnect employees to sign an NDA, they would have likely had sufficient evidence to prove their allegations of “idea theft” by Zuckerberg.
8. What Should be Included in a Standard NDA?
When drawing up a standard Non-Disclosure Agreement, it’s important to identify the following basic elements:
- The “Effective Date”: when the promise of privacy starts
- The “Transaction”: the potential business relationship being explored
- The “Confidential Information”: private, secret, sensitive, or valuable data
- The “Disclosing Party”: the individual or entity sharing information
- The “Receiving Party”: the individual or entity receiving information
- The “Representatives”: other people (i.e., directors, officers, employees, agents or advisors) who may share, receive, or protect information
A basic Non-Disclosure Agreement will always, at the very least, outline these important, boilerplate components.
How to Write a Non-Disclosure Agreement
A simple Non-Disclosure Agreement should generally include the following:
1. Who is on the hook? (the “Parties”)
The Disclosing Party, either a person or a company, generally has valuable information that they want to share with the Receiving Party in order to explore a potentially fruitful business relationship (i.e., the “Transaction”).
Both parties must sign and date the document for it to become a legally binding document.
2. What is protected? (the “Confidential Information”)
Any data or information that is private, secret, sensitive, or valuable will be protected.
Confidential information can include:
Exclusions define what kind of information is NOT protected by the agreement and include:
- publicly known or available information (i.e., Google or USPTO website)
- non-confidential information shared by someone else besides the Disclosing Party (i.e., a third party) to the Receiving Party
- information that can be shared with permission from the Disclosing Party
- information independently developed by the Receiving Party
- information the Receiving Party must share because of a lawsuit
3. What is the duration? (the “Effective Date” and “Disclosure Period”)
The NDA agreement should also explicitly state when the promise to protect the Confidential Information begins (the “Effective Date”) and the duration the protected information must not be shared with others (the “Disclosure Period”).
Usually the parties agree to when the term of the agreement will end (the “Termination” provision). For example, the Non-Disclosure Agreement could terminate whenever:
- the Agreement expires
- the Transaction is completed; or
- a specific amount of time has passed.
4. Where does the agreement apply? (the “Jurisdiction”)
If Confidential Information is leaked or inappropriately used by one party and a disagreement turns into a lawsuit, the parties should agree that the laws of one state will apply. In other words, both parties consent to appear in a specific state.
It is important to know that some states such as California encourage employees to be entrepreneurial, so the laws there disfavor non-compete clauses (also known as a “covenant not to compete” or CNC), as well as employer agreements that restrict an employee’s mobility after leaving one company.
5. What other details should be included in a confidentiality agreement?
- Disclaimer: the protected information is provided “as is” and is not necessarily accurate or complete
- No License: the Agreement does not give either party any patent, copyright, or other right to the information provided
- Non-Disclosure: the Receiving Party promises to not let others know that
- the Disclosing Party has shared or used Confidential Information
- a Transaction is being discussed or negotiated
- a Transaction has taken place, including the details of the relationship
- Obligations: the Receiving Party and its Representatives promise to
- not share or use the protected information with others
- protect the security and confidentiality of the protected information
- prevent any unauthorized access, use, or disclosure of information
- reasonably safeguard the information’s confidentiality (“need to know”)
- return or destroy any documents after the Agreement ends
- tell the Disclosing Party ASAP if the protected info is disclosed or lost
- No Obligation: either party may:
- reject any proposals related to the business relationship
- walk away from negotiations at any time and for any or no reason
- Remedies: if either party breaks their promise to one another
- no amount of money may be enough to make it ever “right” again
- injured party may ask the court to order the other party to (not) do something (i.e., specific performance, injunction, or equitable relief)
- the injured party will go after both monetary and non-monetary damages
- whoever is in the wrong will need to pay for attorney fees
- Non-Solicitation: either party may prevent the other from soliciting or offering employment to the other party’s employees or from diverting business away from the other party
- Notice: if at any time one party needs to tell the other something important (i.e., their computers were hacked and the Confidential Information was stolen or someone has sued them in court), then such notices should be sent to a certain person, email address, or mailing address
You may also require that such notices be delivered by a certain method, such as:
- Delivery in person
- Overnight courier service
- Certified or registered mail
- Postage prepaid
- Return receipt requested