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How to Write a Non Disclosure Agreement?

An incomplete NDA is a liability. If a non disclosure agreement is not written correctly, it can backfire on you. Know how to write a Non-Disclosure NDA, considerable points and what are its benefits.

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Non-Disclosure Agreements (NDAs) provide safeguards for sensitive or private information that must be released. For many years, corporate legal departments have used contract templates to speed up the process of creating NDAs. Whether the NDA covers activities involving employees, RFP bidding, vendors, investors, and a new partnership, these primary forms may not give complete coverage for your needs.  Recent advancements in legal technology-enabled legal departments to use artificial intelligence (AI) to provide recommendations for writing a Non-Disclosure Agreement.

What Happens if the NDA is Not Correctly Drafted?

In this section, we will see what happens when the NDA is not crafted correctly:

  • An NDA agreement gives parties the legal right to protect their company’s proprietary information. It prevents the receiving party/parties from abusing the provided confidential information, and in the event of a violation, the parties will face legal consequences
  • Parties can always refer to the agreement for explanations, but if an advocate does not correctly design the agreement, the disclosing party and the business will suffer significant losses
  • If an NDA is not drafted, it might lead to confusion, conclusions, interpretations, and exploitation of such secret information. The disclosing party will fail to secure its confidential information even after entering into an NDA. Simply signing into an NDA will not suffice
  • It is always vital to check if the clauses are clear and idiot-proof so that all of the clauses are clear from their respective sides. An advocate should ensure that there is no room for the opposing side to interpret the document differently from how it is written.

Benefits of NDA Agreement

In this section, we will walk through the benefits of an NDA:

  • NDAs protect sensitive information
  • Similarly, to protect a new idea or service, an NDA allows the originator to keep ownership
  • Such secret agreements explicitly define which material is sensitive and should not be shared
  • When a company partnership is formed, all participants can preserve their trade secrets
  • When a corporation receives funds, the information is protected for patent registration.

The Traditional Approach to Writing a Non-Disclosure Agreement

A corporation may be held liable if its NDA is ambiguous or inadequate. To safeguard both the party supplying the private information and the party receiving it, the NDA must clarify which parties have access to classified information while setting contract guidelines and expectations.

Typically, a legal practitioner will execute the following procedures when drafting the NDA:

  1. Step 1: Describe the scope of the project. What information is deemed private? Often, NDAs include a catch-all clause that assures any information that a “reasonable person” would assume should be kept secret remains private
  2. Step 2: Outline each party’s responsibilities. What should the party receive the information do to keep it private? How will they stay third-party access at bay
  3. Step 3: Make a list of potential exclusions. When is it appropriate for a party to divulge confidential information? Legal processes and subcontractors’ employment are examples of scenarios in which disclosure may be required
  4. Step 4: Decide on a term. The disclosing parties may want the arrangement to extend indefinitely, but the receiving parties frequently prefer a time limit. When determining the term, the interests of both parties must be addressed; there should be no doubt about the duration of confidentiality
  5. Step 5: Outline the ramifications. Will a violation lead to the termination of employment or a commercial relationship? Can the offending party sue for an injunction or even damages.

While a template agreement may have portions that pertain to each of the processes as mentioned above, it frequently cannot accommodate term variations. On the other hand, a template-based agreement does not guarantee clear descriptions of protected information. The assessment and negotiation process can extend from days to weeks and months to ensure that all relevant details are addressed.

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Non-Disclosure Agreements: The AI Way 

Artificial intelligence (AI) has emerged as a game-changing disruptor in the way NDAs are drafted, evaluated, and negotiated—and the technology is shockingly simple to use:

  1. Step 1: Send contracts through email or upload them for evaluation
  2. Step 2: AI software searches the document, highlights errors, inserts attorney-quality writing, and aligns information to correspond to your legal department’s set of controls, which is consolidated in an AI Digital Playbook
  3. Step 3: Accept modifications in the fully marked-up document
  4. Step 4: Distribute the contract to the other parties involved

Until recently, advanced legal technology was incapable of “writing” elements of these agreements. The most recent techniques developed by legal experts and artificial intelligence linguistic researchers may now produce fully-reviewed and negotiated contracts via an AI-powered contract negotiation platform.

Factors to Consider Before Drafting NDA

In this section, we will discuss the factors you need to consider before you draft an NDA.

  • The NDA’s obligations must be examined
  • The scope of the sensitive information must be considered
  • If a breach occurs, there are remedies available
  • Confidential Information Prerequisites
  • Disclosures and Exceptions
  • Returning Information on Termination Term or Duration.

Example of NDA 

The definition clause is one of the first clauses in the NDA following the standard recital clauses. It must specify, among other things, what confidential information is, as well as the receiving and disclosing parties. As an example:

Common NDA Terms 

In this section, we will understand the meaning of terms which are used in an NDA.

  • Confidential Information: ‘Confidential Information’ shall mean any information provided by the Disclosing Party (defined below) to the Receiving Party (defined below) under or in connection with this Agreement or any other agreement(s) the Parties may sign with each other in writing, orally, and relating to business affairs, technical data, or know-how
  • Disclosing Party: The term ‘Disclosing Party’ refers to ABC Pvt. Ltd., the party that discloses the Confidential Information to the Receiving Party
  • Receiving Party: The term ‘Receiving Party’ refers to XYZ Pvt. Ltd., receiving Confidential Information from the Disclosing Party

Depending on the nature of the agreement between the parties, the definition of Confidential Information can be more extensive. The second would generally discuss the Receiving Party’s responsibilities. This would also cover the scope of the Receiving Party’s confidentiality requirements. 

Obligations of the Receiving Party

The receiving party has certain obligations to the disclosing party. In this section, we will walk through these pointers.

  1. The Receiving Party agrees that it will not disclose any Confidential Information, directly or indirectly, to any third party without the written permission of the Disclosing Party

2. It will take all necessary steps to protect the Confidential Information and prevent its unauthorised use

3. It will notify the Disclosing Party of any accidental disclosure of Confidential Information and take all necessary steps with the Disclosing Party

4. Depending on the nature of the agreement and the information shared, this clause may include additional requirements. Employers may require employees to sign a non-solicitation and non-compete condition in the NDA, especially when NDAs are signed with employment agreements.

In the event of a breach of the NDA, the Disclosing may include an injunctive relief clause and demand liquidated damages to the degree of disclosure.

Injunctive Relief 

The Parties acknowledge that, depending on the extent of disclosure, monetary damages may not always be sufficient to compensate the Disclosing Party for the loss incurred, and in such cases, the Disclosing Party may seek an injunction against the Receiving Party or other such third parties to enforce the terms of this NDA.’

Except in the following instances, the Receiving Party must comply with the duties outlined above:

  1. When the Confidential Information is already in the public domain; when such Confidential Information is required to be disclosed under applicable law or to any regulatory body whose jurisdiction the Receiving Party falls under
  2. Insofar as it is provided to the Receiving Party’s employees, directors, partners, and so on, such employees, directors, partners, and so on shall regard such Confidential Information as confidential
  3. To the extent that the Receiving Party was previously aware of such Confidential Information
  4. On termination of the agreement or in the event of a breach, injunction ordered by a court, etc. Confidential Information must be returned to the Disclosing Party.

The period for which information must be kept confidential may exceed the period specified in the original agreement. 

As an example – ‘Even after the termination of this Agreement, the Receiving Party shall not divulge any Confidential Information obtained by it for two years.’ After two years, it must return any confidential information documents to the Disclosing Party and destroy all copies of the same.

Other boilerplate terms include governing law, jurisdiction, dispute settlement, notification, indemnity, and signature.

Conclusion

Instead of a Non-Disclosure agreement, the main terms of an NDA can sometimes be added to agreements in a confidentiality clause. NDAs are also used in a wide range of industrial applications. They are not only utilised by businesses but can also be included in employee contracts, settlement agreements between adversaries in a dispute, intellectual property contracts, and so on. NDAs are crucial in each transaction and hence should be present at any situation where confidentiality needs to be the topmost priority. 

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