Q&A: Non-disclosure agreements

Gill Hunter, partner and head of the commercial team at Muckle LLP, explains what non-disclosure agreements really are and how they can protect small firms

What is a non-disclosure agreement and how might it apply to my business?

A non-disclosure agreement (NDA) – otherwise known as a ‘confidentiality agreement’ or ‘confidential disclosure agreement’ – is a contract relating to mutual or one-way disclosure of confidential information between two parties. They can be relevant to any business that has concerns about unauthorised disclosure of its valuable or sensitive information - say, intellectual property - or simply wants to restrict the extent of how (or purpose for which) it can be used.                                                  

Surely I can trust the people I share confidential information with?

Unfortunately, in business, there are often unscrupulous parties who would happily abuse the information they are given. Sensitive business information can often be of great value to a competitor. For this reason, you’re advised to protect sensitive or confidential information by entering into an NDA before any disclosure takes place.

They’re common for those involved in developing new products…

NDAs are especially important if you’re disclosing information relevant to a potentially patentable invention. Without an NDA, disclosure must only take place in very general terms and the disclosure must be subject to strict terms of confidentiality. Otherwise you may not be able to get a patent for the invention, if one has not yet been filed.

How do non-disclosure agreements work?

They are contracts that specify what may and may not be done with confidential information disclosed by one party to another, usually in a commercial context. The extent of obligations placed on each party depends on the approach. NDAs often cover the purpose for which the information is disclosed, the period during which the information may be used, and how far a party may disclose the information within its organisation. Usually, they also stipulate how the information must be stored, how it should be dealt with on termination, jurisdiction and what would happen in the event of a breach, among other things.

Can I buy a ready-made agreement or will I have to pay a solicitor to draw one up?

Generally, you pay to have a solicitor draft an agreement specifically tailored to your needs. A short agreement in letter form may be more appropriate for a meeting, at which a small amount of confidential or sensitive information may be revealed. If sensitive documents are handed over or sensitive information revealed, then a more complex agreement is needed. Costs will be determined accordingly. Off-the-shelf agreements are not recommended.

What are the key risks associated with not having a non-disclosure agreement?

As well as preventing patentability, obviously, competitors can gain financially from information they learn about your business or your product development. In other instances, your reputation can become damaged.

Can there be any problems when trying to establish a non-disclosure agreement with a public-sector customer?

NDAs with public-sector organisations are made complicated by the Freedom of Information Act 2000 (FOIA). Essentially, this enables the public to access certain information held by public authorities on request, subject to compliance with specific requirements. As a result, while a public authority can try to protect a third party's sensitive information, they may be obliged to disclose that information on request.

What happens if the other party breaches our non-disclosure agreement?

The benefit of an NDA is that you can sue for breach of contract. This would otherwise be difficult to get any remedy, as without a written agreement it would be one party's word against the other's as to the intention behind and the basis of the disclosure. Your NDA should also specify that claiming damages is insufficient remedy for breach and that you are also entitled to claim special damages and/or alternative relief, for example, an injunction. The argument is that by the time you pursue a claim, damage has already been done.

Further reading