Why an NDA Is Such an Important Business Tool

Almost every business has commercially valuable information that is not generally known to the public. Such information is commonly referred to as a trade secret. The protection of this asset should be a vital business priority. A non-disclosure agreement (“NDA”), or a “confidentiality agreement,” is a powerful business tool used to protect proprietary information. NDAs should be used regularly at all levels of business.

This article will clarify the definition of a non-disclosure agreement, the procedures for executing a valid agreement, and the reasons for its importance.

WHAT IS A NON-DISCLOSURE AGREEMENT?

Put simply, a non-disclosure agreement is a legally binding contract between two parties that establishes a confidential relationship. The agreement precludes one or more parties from disclosing confidential information to any third party, including the media, competitors, other business partners, employers, and employees.

Businesses can execute an NDA with employees, clients, third party vendors, and other business affiliates. NDAs can be unilateral, meaning that one party is disclosing confidential information to the other party. In a unilateral NDA, the non-disclosure obligations will apply only to the non-disclosing party. NDAs can also be bilateral, meaning that both parties disclosed confidential information, and both parties are prevented from disclosing confidential information.

In essence, NDAs allow companies to protect their proprietary information from being used by competitors and former employees by restricting the dissemination and permissible uses of that information for a definite period of time.

HOW DO NDAS WORK?

There are some basic features that all NDAs have in common, but an vary in form, structure, and substantive detail depending on the specific circumstances of each agreement.

NDAs typically have the following key provisions:

  1. The names of the parties of the agreement;
  2. The business purpose of the agreement;
  3. The definition of confidential information, including exclusions;
  4. Any use and restrictions of the confidential information;
  5. Any safekeeping requirements;
  6. The agreement’s term; and
  7. Provisions regarding the return or destruction of confidential information.

WHY NDAS ARE AN EFFECTIVE BUSINESS TOOL

NDAs are prevalent at all levels throughout the business world. There’s a good reason for this. NDAs are an effective business tool.

There are several reasons to implement NDAs as part of your ordinary business routine, such as:

  1. Avoiding confusion on what is considered confidential information;
  2. Clearly defining the expectation regarding the safeguarding and treatment of confidential information;
  3. Providing a written contract for easier enforcement of legal rights; and
  4. Providing evidence of a business’ efforts for safeguarding its trade secrets, which is required under Texas Uniform Trade Secret Act.

The primary use of NDAs is allowing businesses to maintain a competitive advantage in their industry. NDA can prevent proprietary information, such as design models, marketing strategies and customer lists, from being used by former employees, business partners, or competitors. NDAs are most useful where proprietary information is key to a business’ success.

WHEN SHOULD YOU USE NDAS?

Non-disclosure agreements are implemented at every stage of operations of a business. NDAs are commonly used in the following transactions:

  1. Onboarding New Employees: Employees commonly have access to confidential information, such as customer list, marketing tools, company procedures and specialized techniques. As part of the onboarding process, employers should protect their trade secrets by executing an NDA to enforce obligations of confidentiality, which will extend beyond the employment period. 
  2. Consulting Engagements: When evaluating or engaging a business or marketing consultant or agency, a company will commonly and necessarily disclose confidential information to enable the consultant to perform the assignment;
  3. Proposals: When submitting proposals to potential clients and investors, a party will commonly disclose pertinent information regarding its inventions and ideas prior to signing a written license or service agreement. One way to protect that proprietary information is to execute an NDA prior to submitting your proposal.
  4. Service Agreements: Soliciting proposals from third party vendors, suppliers, software developers, or other service providers, can involve the exchange of personnel records, business methods, technical specifications, and other confidential information of both parties.

It is common practice during these types of transaction for companies to share, receive and exchange confidential information with employees, customers, suppliers and other parties. A non-disclosure agreement is an essential business tool to protect your intellectual property in these circumstances. Hayes Hunter PC can draft an NDA that is specifically tailored to your business needs and unique circumstances to effectively protect your valuable proprietary information.

We’re here to help with that. Get in touch with us today, and let our experienced team of attorneys provide you with the legal advice your business needs. 

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Charles Hunter

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