Have you ever told someone something in confidence only to find out that information was somehow disclosed to others? Maybe it was an unintentional disclosure. Perhaps the person you confided in didn’t realize you intended the information to be kept private or accidentally let it slip.

Regardless of whether it was an innocent mistake, the above example illustrates how imperative it is to explicitly state the way in which privileged information should be treated, particularly in business dealings.

Berkeley Law & Technology Group understands the importance of non-disclosure agreements (NDAs) for protecting trade secrets and other confidential business information. We’ll break down why you should have one and how it can protect your interests.

Non-Disclosure Agreement Defined

So what exactly is a non-disclosure agreement? A non-disclosure agreement is essentially a confidentiality agreement. It is a legally binding contract between two or more parties that requires any proprietary information shared between the parties to be kept confidential.

There are generally two main types of non-disclosure agreements—unilateral and mutual. For instance, if you are a business hiring an employee or an independent contractor, you would likely have them sign a unilateral agreement. This type of agreement only binds one party (in this instance, the employee) to the agreement. In other words, only the employee or contractor would be required to uphold the terms of the non-disclosure.

However, there may be times when you enter into a partnership or special arrangement with another business. Such an arrangement may require both businesses to exchange sensitive information with the other. In such a case, it would make sense to have a mutual non-disclosure agreement that binds both parties to the agreement. Similarly, if more than one party is involved in a non-disclosure agreement, a multilateral agreement would bind all parties to its terms.

Why You Should Have a Non-Disclosure Agreement

Most businesses have something they want to keep secret. A restaurant or bakery, for instance, may have a secret recipe to protect. A toy company may have a new product or creation it wants to keep under wraps until it can obtain a patent for it. An up-and-coming business could have a company logo it plans to trademark.

The first step in protecting a creation, invention, or artistic design is to have those with knowledge of its existence sign a non-disclosure agreement. This will ensure the proprietary information remains confidential or, at the very least, that you have recourse should the agreement ever be breached.

If someone leaves the company for a position with a competitor, for instance, a non-disclosure agreement makes it less likely that the company’s trade secrets will leave along with that employee. By keeping proprietary information under wraps, you are protecting your company from potential lost profits.

Non-disclosure agreements can cover more than simply a creative idea or product design, though. They can also be used to protect your company’s finances. If you are looking to acquire investors and need to disclose your company’s financials to prospective backers, non-disclosure agreements can be used to require the details of your company’s financial health remain private.

In short, non-disclosure agreements can be useful in several types of situations to protect sensitive company information from falling into the hands of a competitor or being released to the public.

Drafting a Non-Disclosure Agreement

Although they can vary, there are some key components that should be included in almost every non-disclosure agreement. First, what can and cannot be disclosed should be clearly outlined. In addition, it’s important to set forth how the confidential information to be disclosed will be used. You should specify the scope of how the confidential information can be used. There should also be mention of what legal penalties a party could face in the event that the agreement is breached, such as being responsible for incurring the expense of attorney’s fees.

The agreement should also outline whether any information is exempt from the non-disclosure and explicitly state how long the agreement shall remain in effect. Some non-disclosure agreements remain in effect indefinitely while others expire after a specified period of time.

Non-disclosure agreements also typically include clauses stating which locality has jurisdiction over settling any disputes that may arise from a breach of the agreement. It is also fairly common for the agreement to preclude an employee from trying to recruit other company employees for a certain period of time once the employee bound by the non-disclosure agreement leaves the company. This helps dissuade your former employees from poaching team members that you’ve already trained and developed.

As you can see, there are many points to consider when drafting a non-disclosure agreement. This isn’t a comprehensive list of everything that goes into one. It’s merely a brief overview to give you an idea of just some of the things that are typically covered.

Hire a Professional

One of the most important things for you to keep in mind is that in order for non-disclosure agreements to be enforceable, their stipulations must be clear. If the agreement contains vague language or unreasonable terms, then it may be unenforceable. That’s why it’s so important that non-disclosure agreements are drafted with all the terms carefully and clearly laid out.

The best way to make sure your agreement is clear and enforceable and that you avoid the potential pitfall of legal loopholes is to hire an experienced attorney to draft the non-disclosure agreement for you. Berkeley Law & Technology Group is a firm with skilled attorneys who have a wide breadth of experience in helping both startups and emerging growth companies protect their intellectual property assets. We can help you draft a non-disclosure agreement unique to your business interests and needs.

In fact, we’ll use our experience to give you some free counsel right from the get-go. Save yourself the time, expense, and headache of a long legal dispute over intellectual property rights down the line by taking steps to protect those rights today. It’s one of the most important business decisions you may ever make.