The Simple answer to the question, "Why do I need a Confidentiality Agreement (or NDA)?" is, "BEFORE YOU DISCLOSE ANY PROPRIETARY SECRET."  If you don't want someone else to use the information that you are disclosing, get their promise not to disclose in writing!

     Generally, Confidentiality Agreements, also known as non-disclosure agreements or NDA's, are contracts wherein each party agrees not to disclose and to keep confidential certain information that is disclosed by the other party.  

      The Confidentiality Agreement is often utilized where one party intends to disclose to the other party, confidential, proprietary, information, such as a secret idea, process, service or product.  Such disclosure typically occurs when the disclosing party wants another person and/or company to evaluate the secret information prior to entering into a comprehensive Joint Venture Agreement, Collaboration Agreement or Licensing Agreement.  

The benefits of utilizing a well-drafted Confidentiality Agreement include the following:

     First, the Confidentiality Agreement reduces the risk that the valuable secret information will be disclosed to, and possibly used by, third parties.  If the secret information is disclosed to a third party and such disclosure amounts to a breach of the Confidentiality Agreement, the party that is the owner of the secret information, will have a cause of action for breach of contract and will be able to seek injunctive relief (where the court orders the breaching party to cease disclosure and use) and may also seek monetary damages.

    Second, an important benefit of utilizing a well-drafted Confidentiality Agreement is that it will reduce the risk of forfeiture of your valuable patent rights.  That is, public disclosure may result in your development or secret to be determined, not patentable and patent rights may be forfeited.

     Third, Confidentiality Agreements define in writing, specifically what, if any, information can and cannot be disclosed by the receiving party and when and under what circumstances such disclosure can occur. Typically the disclosing party will prefer the protected information to be as broad as possible and the receiving party will prefer a more narrow protection.

     Fourth, the Confidentiality Agreement may provide for limitations on the receiving party's use of the confidential information, e.g., to be used solely for the purposes of evaluating the specific business opportunity.   

What can be protected by a Confidentiality Agreement?  

    A well-drafted Confidentiality Agreement can protect any information that is disclosed to the other party, such as, processes, recipes, test results, systems, new products, client lists, other trade secrets, etc. 

    It is very important that the receiving party make sure that there are exceptions to the confidentiality provisions set forth in the Confidentiality Agreement, e.g., information that the recipient had prior to the disclosure, information in the public domain, information created by recipient, etc.

    The disclosing party may want to provide provisions within the Confidentiality Agreement that require certain treatment of the material provided.  Again, if reasonable steps are not taken, trade secret protection may no longer apply to the material.

    Also, the Confidentiality Agreement should set forth a time period for the making of disclosures and the period during which confidentiality of the information shall remain confidential and not disclosed.

   Furthermore, Confidentiality Agreements often contain provisions confirming that there is no license granted to the disclosed material, within that agreement, express or implied and that any and all material disclosed shall be returned to discloser upon request.

     Thus, there are many situations where a Confidentiality Agreement is not only appropriate, but essential to business success.  Contact an Experience Business Attorney today for a Free Consultation with regard to your specific circumstances.  

Related Information and Checklists:

Confidentiality Agreement Checklist

Non-Compete Agreement Checklist

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