Many companies maintain an advantage by keeping projects, products and innovative ideas out of their competitors’ hands. A non-disclosure agreement (NDA) helps keep a lid on a business’s proprietary information.
Also known as “confidentiality agreements,” NDAs protect private material when companies must share sensitive details with other parties. NDAs are common when businesses discuss potential joint ventures or strategic transactions and to keep their employees from disclosing confidential information.
When do NDAs make sense?
While there can be many reasons why companies protect confidential information with NDAs, some of the most common include:
- Showing a prospective buyer or licensee a new product
- Sharing marketing, financial and other sensitive details with a potential buyer
- Sharing business ideas or inventions with potential investors, partners and distributors
- Working with a vendor, company or individual with access to confidential information
- Employees who utilize sensitive materials during the course of their job
What to include in a confidentiality agreement
While NDAs don’t necessarily have to be complicated, they should consist of these key elements:
- Names of the parties involved
- A detailed description of all information deemed “confidential”
- The scope of the agreement, meaning that the receiver of the information will keep it secret and won’t use it for their own benefit
- Any exclusions, such as information that is already publicly known or known prior to the agreement by the recipient
- The term of the agreement, which in many cases, is two to five years
While some companies may want an NDA to run forever, the need to protect the information in perpetuity is generally unnecessary, and those agreements can be costly to enforce in the distant future.
Other provisions that may make sense
In addition to these main components, businesses may want to add other items, such as restricting a competitor from hiring your employees – or non-solicitation clauses. You may also want to specify the jurisdiction where disputes will be heard, the right for injunctive relief over violations and that the receiving side must return or destroy the information upon request.
In summary, NDAs perform a vital function to keep your good ideas from being stolen by others, especially those who have access to sensitive information during the regular course of business. Working with an experienced Houston business law attorney is crucial for protecting your company. A lawyer with a keen eye for detail is necessary when drafting these agreements.