How to draft a Non-Disclosure Agreement(NDA)

We are familiar with the fact that trade secrets and confidential data do not have the necessary statutory protection in India, therefore the same needs to be protected by signing a Non-disclosure agreement. As the name suggests a Non-disclosure agreement is a legal contract the prohibits then parties from sharing such information that is deemed to be “confidential”. The confidential information will be clearly defined within the agreement which may include, but shall not be limited to trade secrets, proprietary information or any other information regarding a future plan. Clauses While drafting a NDA it is essential to enumerate the following clause:

• Identification of the parties signatory to the agreement: It is important to list down the disclosing party and the recipient of the confidential information. However apart from the owner and the recipient the non disclosure should also contain a clause stating that to whom else can the recipient disclose the said confidential information. There are mainly 3 types of Non-disclosure agreements namely:

1. Unilateral NDA: In such an agreement one party discloses certain confidential information and restricts the receiving party from disclosing the information to any other person or organisation.

2. Bilateral NDA: In such an agreement both the parties disclose certain confidential agreement with the terms of non disclosure to other parties.

3. Multilateral NDA: In such an agreement more than 2 parties are involved and in which one party shares some confidential information whereas the other parties guarantee to not disclose the information to an eternal party. The said clause may be added as: “This Agreement is between ____(Discloser); and ____and _____ an [individual/organisation] [residing/situated] [in/at] _________(Recipient).”

• Definition of Confidential Information The most essential clause as it clearly specifies the information that is to be not disclosed, which forms the reasoning behind the formation of the said agreement. It is essential to not only enumerate what type of information cannot be disclosed but also should contain, either within the same clause or a separate clause, what type of information can be disclosed. Whilst drafting the definitions clause the owner should take the utmost care in order to avoid formation of any loophole. The clause plays a vital role for the recipient as it lays out what information can the recipient disclose and what information needs to be withheld.

• Term/Duration Every Non-disclosure agreement should outline the timeframe for the effectiveness of the agreement. There is no set timeframe for such agreements as these are based on the type of information being deemed as confidential. The clause can be framed as: “Term of this Agreement: The term of this agreement is one year commencing on the date of signing of this agreement.”

• Use of Information It is inadequate to only lay emphasis on the non-disclosure of the confidential information but to also lay the base for usage of the said information. The reason for sharing such information must be recorded, the manner in which the information to be used should be listed in the agreement. For example signing of NDA between Marvel studios and the actors to not publicise any aspect of the movie franchise. The said clause can also be stated as the Obligations of the recipient or receiving party.

• Ownership Due note should be made while discussing about the ownership of the information being disclosed. Generally the ownership is retained by the owner or disclosing party unless specifically written and agreed upon by both the parties.

• Obligation to disclose Information by law If under any circumstance the recipient is compelled to disclose the confidential information due to intervention from an order from any government agency or via an order of the court, the clause needs to discussed and agreed upon. The disclosing party may as well state in the clause that any disclosure of the information shall be first notified by the receiving party to the owner.

• Return of confidential information In the end of the term of the agreement the information needs to be returned in the manner which is pre-agreed upon by the parties. The clause should set forth the mode for returning the confidential information. The said information may either be returned to the disclosing party, be deleted or be destroyed as per the instructions of the owner.

• Jurisdiction The parties must agree upon the court which shall have jurisdiction to hear the matters arising out of any dispute with regards to the NDA.

• Remedies Similar to jurisdiction, the remedies in case of breach of agreement should be inculcated in the agreement. The damages incurred by disclosure of the confidential information may be onerous therefore a consensus must be reached upon to avoid prolonging the debate of remedy. Similarly the clause should include the probable outcomes in case there is a breach of contract and that the owner or disclosing party holds the right to seek remedy or compensation for the breach committed on behalf of the recipient.

• Amendment and Severability It needs to be specified within the agreement that in case any provision is found or deemed to be in contradiction to any law presently enacted in the country or state the said provision will either be amended or severed without affecting the whole of the agreement. NDA serves the purpose of protecting information which, if leaked, could cause severe damage to the functionality of the individual or organisation. In terms of Intellectual property rights NDA’s play an essential role to safeguard the idea generated by any individual or organisation. Companies such as Coca Cola, Pepsi and KFC have their formulas and recipes registered as a trade secret therefore any employee who is directly involved in the production or research for the said organisations is compelled to sign a non disclosure agreement and safeguarding the confidential information.

Suyash Shanker (Author)