Does Your Business Need NDAs?
Suzanne Townley
06/02/2019

Finding appropriate ways to protect your business is an important part of your long-term business strategy. Protecting your organisation’s confidential information should form a key part of this strategy.

In this blog, we will consider how the use of non-disclosure agreements (also known as NDAs or confidentiality agreements) can help protect your information and your business.

What is an NDA and what is the benefit of using one?

The law of confidential information offers protection in relation to commercially sensitive information which cannot be protected by intellectual property rights, such as copyright, or which can only be protected in this way to a limited extent.

In order for information to qualify for protection under the law of confidential information, the relevant information must be confidential in nature and disclosed in circumstances that impose an obligation on confidence.

An NDA is a practical way in which a business can seek to ensure that its confidential information is protected. An NDA is a written contract that sets out the terms on which the parties will share confidential information. It provides some comfort for the disclosing party (being the party that is sharing its confidential information) that the receiving party (being the party that receives it) is on notice that the information being disclosed pursuant to the NDA is confidential, and that the receiving party is under a contractual obligation to keep it that way.

Enforcing an obligation of confidentiality under a contract will most likely be more straightforward than trying to enforce an obligation of confidentiality under general law.

So, what specifically does your NDA need to cover?

Define the information to be protected

A key aspect of the NDA is defining the information that is to be protected. If there is certain specific information that you wish to keep confidential – for example, a recipe – this should be specifically identified, but also consider that including a broader definition of information may be useful in order to capture any wider or inadvertent disclosures of information. It is worth bearing in mind that once information ceases to be truly confidential, nothing that is set out in a contract can change this. This is often reflected in the definition of confidential information by including a description of circumstances in which information will cease to be protected.

Obligation to keep the information secret and permitted use

The NDA must specify that the confidential information should be kept secret or remain confidential, and set out the specific purpose for which the receiving party may use the information.

Permitted disclosures

There are certain circumstances in which it will be reasonable for the receiving party to disclose the confidential information. Employees and/or advisors of the receiving party may need to be privy to the information, but consider linking their use back to the purpose for which the information has been shared. Consider also whether the receiving party should be obliged to ensure that all such employees and advisors are under separate obligations of confidentiality to the receiving party. The receiving party may argue that this is too onerous; however, at the very least, the receiving party should be liable for any breach of confidentiality obligations by such employees or advisors. No attempt should me made to restrict disclosures required by law.

Duration of the obligation

How long the obligation of confidentiality should exist for will depend on the type of information being disclosed. Certain information may only have a very short shelf life in terms of commercial value, and so to include an indefinite obligation of confidentiality could be deemed to be unreasonable in these circumstances. As such, you will need to consider what is appropriate in the specific circumstances.

Return or destruction of information

In certain circumstances, it may be appropriate to include an obligation on the receiving party to return or destroy your confidential information, for example, if negotiations in respect of a particular transaction come to an end. This will provide you with certainty that the confidential information does not remain in their possession.   

Consequences of Breach

From the perspective of the disclosing party, it is desirable to see a clause in the NDA that states that damages alone will not be an adequate remedy in respect of any breach. The courts have been willing to issue injunctions to prevent or stop the misuse of confidential information in certain circumstances, and also to order the destruction of confidential information. The inclusion of this type of clause may go some way to persuade the court that such an injunction would be reasonable in the circumstances, and may be of more practical benefit to a party if issued at the right time (namely before the information has been disclosed or used).

The disclosing party will also typically seek damages to compensate them for the loss which the defendant’s breach has caused. If the claimant would have used the information themselves to generate profit, damages will be measured based on what would be fair compensation for such loss. However, if the claimant would have licensed or sold the information to a third party, damages will be calculated based on what is deemed to be fair market value of such information in the context of a sale or licence between two willing parties.

 

For more information regarding how you can seek to protect your organisation’s confidential information, please get in touch with our team here at Pannone Corporate. You can do so by either calling the team on 0800 131 3355 or by filling out our contact form.

 

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