Important Points To Consider Before Signing A Non-Disclosure Agreement
A non-disclosure agreement (NDA) is a legal contract between two or more parties, which involves negotiations with the other party – agreeing not to disclose sensitive information. Confidential information could potentially harm the business of the disclosing party if it were to be made public.
Before signing an NDA, you should keep a few things in mind.
What type of NDA are you entering into?
There isn’t a single, standard NDA; instead, the specifics of what you have to keep private and the penalties for breach vary from agreement to document. Therefore, you must comprehend the specifics of the contract you agree to before you sign.
The most common NDAs you’ll encounter and sign are:
- Unilateral NDAs
- Basic NDA
- Employee NDA
- Financial NDA
- A Merger/Sale NDA
Consider the type of NDA you require based on your requirement.
Protect confidential information before signing the NDA
Before the parties sign the NDA, it is simple to divulge private information during discussions. Since the parties have yet to agree to restrict each other’s use and sharing of information, this could be risky.
Simply use the term “confidential data” to avoid slipping into sensitive information. Don’t discuss the information’s real content; instead, concentrate on the length of the agreement and the restrictions you want to impose.
In essence, what information is permissible to share and not?
Participants in the Agreement
Each party involved in a non-disclosure agreement must be properly identified. The person receiving the sensitive information might be a particular person, every employee of a different unique company, or any company representative.
However, it’s critical for a business to clearly describe itself in an NDA. Take businesses with intricate legal arrangements, for instance.
Is the cost of a breach defined in the NDA?
The violation cost should be the first thing you check out in a nondisclosure agreement before you even consider signing it. The cost of the violation can be in terms of monetary damages.
When are liquidated damages upheld in court? A decent rule of thumb is that a liquidated damages clause is only enforceable if the potential damage of a breach has a real, quantifiable cost and that cost is consistent with the penalty cost in the NDA. Regional and/or national law would be the best to look up. Therefore, a damage forecast like this must be supported by solid mathematics.
What time frame does the NDA cover?
Depending on the sort of NDA you sign, a different amount of time will be deemed “appropriate” for it. A financial NDA with an infinite length is generally acceptable.
Similar to this, some laws claim that “trade secrets” have no expiration date; a company’s procedures do not immediately become fair use or public domain after a specific amount of time. The NDA must still include clauses like “until the trade secret is generally known” or “is no longer deemed a trade secret,” nevertheless.
An NDA of two to three years is typical for someone purchasing a firm. It may be customary to sign an NDA with a 6-month grace period after leaving a job (depending on the nature of the business and its level of secrecy).
Lastly, look for a contract termination clause. Having a “way out” is usually advantageous. A termination clause for an NDA that stipulates that both parties may terminate the agreement in writing is ideal.
What constitutes a violation?
The description of your obligations and what constitutes a violation of the NDA should be carefully crafted in the following section of the NDA. What constitutes a breach should be spelled out in the NDA. Direct references to violations could be made for actions including exchanging documents with third parties, taking pictures inside the facility, or even photocopying work materials.
Ask yourself, does the NDA specify the grounds for a lawsuit? The NDA ought to be clear about what violations or actions would compel the other party to file a lawsuit against you.
What would happen if you broke the NDA?
The next stage in reviewing an NDA is to look at what each party will do in the case of a violation.
What actions might or might the victim take? If you are accused of a breach, the NDA should define these actions so you know what to do next (and prepare yourself for how they will proceed). They consist of sending a cease and desist letter, out-of-court settlement, temporary restraining orders, and injunctions.
Conclusion
It’s common practice in business transactions for one or both parties to make an agreement to divulge proprietary and secret information. The giving party often requires the receiving party to sign an NDA or confidentiality agreement to protect interests and the value of such information. Although NDAs can vary greatly, a mutual NDA will be negotiated when both parties to an agreement want to preserve confidential information.
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