“NDA” is an acronym which stands for Non-Disclosure Agreement, which is sometimes also called “Confidentiality Agreement”. An NDA obliges the receiving party not to disclose sensitive data, such as confidential or proprietary information, to third parties.
All businesses have trade secrets which it is in their interest to protect. At the same time, however, there are often situations in which it is desirable or necessary to share such sensitive information with others. To this end, NDAs are often utilised, with the intention to provide peace of mind to the disclosing party.
This will be more closely discussed in the following.
An NDA is a deterrent
Laymen hope that, by its pure existence, it discourages the receiving party from a breach of the NDA even if the consequences of a breach and the enforceability of the NDA is not clear to the receiving party. I can say after 21 years in practice that this hope has never ever materialized.
An NDA is an icebraker
This is definitely true. An NDA, especially when entered into smoothly, often builds a basis for a fruitful confidential exchange, since it gives hope to the parties that further negotiations will also run smoothly. However, I have seen this being often abused by one of the two parties.
An NDA is a trust maker
In an NDA, it is often agreed by the parties that all sorts of information, whether protectable or not, is also covered by the NDA. This gives a higher felt security, especially to legally unexperienced parties. Again, I have often seen this being abused by the legally more experienced one of the two parties.
An NDA prevents the exchanged information from becoming prior art for subsequent filing of patent applications
This is established case law in many countries, and this is one of the two only ultimately valid reasons to enter into an NDA.
An NDA prevents abusively published information (i.e. confidential information which is disclosed in breach of an NDA) from becoming prior art for subsequent filing of patent applications
This is established patent law in many countries, and this is the other one of the two only ultimately valid reasons to enter into an NDA.
An NDA forces the parties to switch on Common Sense
Since the main subject of any NDA is the Confidential Information, the drafting of the definition of the Confidential information and delimiting it from free information is needed. This prompts the parties to accurately select the needed information and to plan documenting and protocolling the information exchange.
An NDA can result in new patent filings
The information exchange after putting an NDA in place increases awareness for new inventions which is very useful for identifying new subject matter for patent filings, as well as for identifying the respective inventors.
So much good! Why should you still be critical with respect to NDAs?
As will be shown in my next article, the value of NDAs is highly overestimated, and too much time is usually invested in negotiating the minute details of such agreements.
NDAs all too often cause issues at the pre-negotiation and negotiation stages of business dealings, causing more hassle than they are worth.