Non-disclosure agreements: Not worth the paper they are written on?
It is a common refrain that non-disclosure agreements (commonly known as NDAs or confidentiality agreements) are not worth the paper they are written on. However, when used properly, nothing could be further from the truth.
Famously, a business like Coca-Cola will go to great lengths to protect its trade secrets, and in doing so they maintain their competitive edge. Indeed, the secrecy of the Coca-Cola recipe – which that company protects in part through the use of NDAs and other arrangements to protect confidentiality – has even become part of its marketing and promotional strategy.
When are NDAs used?
While a general “law of confidence” does exist (which may or may not apply depending on the circumstances), most businesses with information that is secret and valuable will use NDAs to protect that information and to regulate the use of that information by those with whom they wish to share it.
NDAs are commonly used:
- when sharing business information with a prospective buyer of a business;
- when discussing the sale or licencing of a product or technology, or;
- when receiving goods/services from a third party who may have access to confidential information in the course of providing those goods/services.
Common NDA Mistakes
Despite being perhaps one of the most commonly-used legal agreements, NDAs are easy to get wrong. Common mistakes that people make in connection with NDAs, include:
- Using a template agreement and assuming that it will work. Every circumstance has its own unique requirements; a template agreement (usually taken from the internet!) is highly unlikely to reflect your particular scenario, background and needs.
- Failing to identify the confidential information which needs protecting and/or failing to identify the relevant exceptions to it. Clarity on what is and what is not claimed as confidential is key.
- Failing to provide any practical restrictions on the use of information by the other party to the NDA to prevent information leaks (or alternatively providing far too many restrictions so that the NDA becomes a massive barrier to progressing the parties’ shared objective).
- Failure on the part of the owner of confidential information to actually treat the information as confidential themselves. Courts are reluctant to enforce NDAs when the evidence shows that the claimant has failed to maintain the information as confidential themselves or in their dealings with other parties.
It should also be mentioned that the mere fact of requiring another party to enter into a legally binding NDA often has the further benefit of “focusing their mind” on the confidentiality of the information in question.
Here to Help
For advice in respect of your NDAs, please contact either James Sarjantson on 0113 201 0401 – or Thomas Taylor on 0113 201 0407 –
This article was written by Thomas Taylor. Thomas is a solicitor in our Corporate department. Based in our Leeds Office Thomas specialises in commercial contracts
Disclaimer: This article is for general information only and does not constitute legal advice. For legal advice on any specific set of circumstances, contact the author.