How to Protect Trade Secrets in an NDA: Key Guidelines

Learn to safeguard your trade secrets in an NDA. Follow these strategies to ensure your business’s sensitive information stays secure and confidential.

According to the National Center for Science and Engineering Statistics, companies that have performed or funded R&D consider the protection of trade secrets very important. In fact, they consider that protection more important than protecting trademarks or copyrights. 

The key to protecting trade secrets is to utilize an NDA. A Non-Disclosure Agreement establishes the rules on information distribution and what kind of punishments a person can expect for breaking them. 

Here is your confidentiality agreement guide on how to protect trade secrets in an NDA. 

Define Trade Secrets Clearly

The first of the many NDA best practices is to always make clear what the agreement protects. In this case, you’ll want to define in writing what constitutes a trade secret. 

Consider what parts of your process or meetings are most important to your company. That may include business strategies, customer lists, technical processes, or proprietary software. 

Avoid any vague terms such as “confidential information”. An individual who shared trade secrets could defend themselves by claiming they were never told what items were considered confidential. If something isn’t specifically noted on an NDA, it could prove invalid in court. 

Include Robust Confidentiality Clauses

NDA confidentiality clauses establish details like the obligation to maintain confidentiality and the duration of that obligation. This is the part of an NDA that restricts the use of trade secrets. 

For example, your clause may say that each party agrees to hold all confidential information from third parties unless there is prior written consent. Furthermore, it may specify what exactly is considered a trade secret or when that agreement expires. 

Limit Access to Trade Secrets

Protecting business secrets means limiting who knows them. Your NDA should include provisions that limit access to trade secrets on a “need-to-know” basis. That means that even if a person is trusted to disclose information, it all depends on who they’re disclosing it to. 

Only individuals directly involved in the relevant project or transaction should have access to sensitive information. Recipients should implement security measures such as password protection or restricted access. You may or may not include this stipulation in the NDA. 

Address Third-Party Disclosure Risks

Create clauses that limit what information is shared with third parties and how they can go about sharing with permission. You can do this by prohibiting disclosure without written consent from all related parties. It’s also a good idea to require the third party to sign their own NDA, which may be different from the initial one. 

Make it clear what the penalties are for the individual who discloses trade secrets without authorization. You may want to include clauses that hold them responsible for what a third party does with the information. 

Establish Ownership of Trade Secrets

Even though an NDA is a legal contract involving two or more parties, it should make clear who retains ownership of the trade secrets. This will prevent misunderstandings about who owns the shared information. 

License agreements provide a good example of protecting intellectual property. These agreements detail who can use a product, how they use it, and what they owe in return. Meanwhile, every user of that intellectual property knows who owns it. 

Specify Jurisdiction and Governing Law

Your NDA should specify the jurisdiction and governing law under which any disputes will be resolved. This can help you avoid legal complications, especially if dealing with international agreements. 

Choose a jurisdiction that has strong trade secret protection laws. In an ideal case, your company will operate in the same area as this jurisdiction. You might opt for a foreign one if the trade secrets apply more to that area or if you have multiple NDAs with companies or individuals there. 

Try to involve an attorney to provide legal tips for NDAs and guidance. 

Include Remedies for Breach

NDAs don’t only have clauses stating punishments or penalties for a breach of contract. They can also include potential remedies or ways to protect both the trade secrets and the partnership. 

One remedy is to provide injunctive relief to prevent further disclosure. This may involve removing access for certain individuals or removing them from the project. 

Monetary damages for losses incurred will punish someone who leaks information while helping the project from going under. In addition, include a clause that requires reimbursement of legal fees. 

Highlight the harm a breach of confidentiality can cause and that it may lead to immediate legal action. 

Ensure Mutuality

Certain projects may require both parties to share trade secrets. In that case, ensure the NDA is mutual so the same confidentiality obligations bind both parties. 

Doing so can foster trust and ensure equal protection for both sides. You can also consider it a mutual destruction agreement, as both parties will have access to valuable information. 

Clearly identify the information each party is obligated to protect in these NDAs. 

Customize NDAS for Specific Scenarios

A generic NDA won’t cover all the different scenarios your company may face. Tailor your agreements to the specific context in which you share your trade secrets. 

Employee NDAs should include clauses addressing intellectual property created during employment. You can even have them sign NDAs that protect your trade secrets long after they leave for other careers or positions. 

Vendor NDAs should specify how to handle confidential information during service provision. This is where individuals should only have access to information on a need-to-know basis. 

Educate Employees and Partners

An NDA is only effective if all parties understand their obligations and the contract. Failure to understand the contract will result in unnecessary accidents and legal action. 

Provide training for employees and partners so they understand the importance of confidentiality and the potential consequences. 

Protect Trade Secrets in an NDA

The key to keeping trade secrets in an NDA confidential is through a well-made contract. You’ll want to put a lot of work into covering every angle or situation that can occur. The last thing you want is to make your company vulnerable due to a loophole. 

Berkeley Law & Technology Group can help protect your company secrets. Our team specializes in various areas of intellectual property law and operates throughout the US, Asia, and Europe. Reach out with any questions or to schedule a call.