Non-Disclosure Agreement: A Comprehensive Checklist Of Important Clauses And Their Purpose

24th July, 2023 - 5:47 am Categories: Legal Issues Non-Disclosure Agreement 0 Comments

INTRODUCTION

There are numerous instances where parties find themselves in situations where disclosing confidential information becomes necessary, whether it is for the purpose of invention, business, partnerships, etc. In such situations, the Non-Disclosure Agreement (NDA) becomes an indispensable tool for safeguarding one’s intellectual property. This article provides a comprehensive checklist of the most important clauses that form the backbone of an effective NDA and shed light on importance of it in maintaining confidentiality and fostering trust between parties.

There are 3 types of nondisclosure agreements 

(i)Unilateral NDA- This is also known as one-way NDAs, in this type of  agreement one party discloses its confidential information, and the other receives the information, therefore the one who is disclosing the information is commonly known as the “Disclosing Party” and the party that will have access to that information is called “Receiving Party”

(ii)Bilateral NDA/ Mutual NDA – It is a two-way NDAs involves two parties, each of whom shares information intending to keep it from being shared further.

(iii) Multilateral Agreement- It involves three or more parties entering the Agreement, out of which at least one party discloses the information to other parties and intends to protect the same from further dissemination. A single Multilateral NDA can be made use of in place of two to three Unilateral or Bilateral NDAs.

CHECKLIST TO THE IMPORTANT CLAUSES AND THEIR OBJECTIVES

• TITLE– It is a descriptive heading, which is at the very beginning of the agreement and often centered and bold. It helps to identify the nature and purpose of the whole document.
• RECITALS– Recitals clause is also known as the ‘preamble’ of the agreement which gives a brief introduction of parties and the reason why they are entering into the agreement. It is preferable to keep this clause specific and short. Under this clause, you can add details like; the name of parties, the type of work they are engaged in, their registered address, incorporation year, etc. Purpose of this clause is to provide a background of subsequent provisions of the agreement.
• DEFINITION – This is the describing part of the agreement which defines the meaning of different terminologies that have been used in an agreement and what is the meaning of ‘confidential information’ for parties.

Confidential information– It is the most important part of the definition clause, where confidential information can be anything that is intended to be kept confidential like- inventions, ideas, processes, research, formula, data, programs, etc, the list is not exhaustive and can vary party to party. The confidential information survives even after completion of the agreement which means one is not free to disclose the information he has received just because the term of employment is over. As per this clause Receiving Party is obliged not to disclose the confidential information of Disclosing Party without prior permission and even shall take steps necessary to protect such information from any unauthorized disclosure. But is subjected to some exceptions – the person disclosing the information is legally compelled to do so, information already available publicly, information already known to the third party without the fault of another party. This clause obliges the parties to use the information for authorized purposes only.

• COVENANT/OBLIGATION OF PARTIES– This clause mentions all the duties and obligations of the parties, either mutually agreed between the parties or by the will of the disclosing party. This clause includes subclause like: Without prior written consent, parties shall not disclose any Confidential Information to any Unauthorized Person, to take due diligence and necessary precautions regarding the protection, not to use the confidential information for their gain/ profits, etc.
• RETURN OF CONFIDENTIAL INFORMATION – According to this clause, the recipient must either destroy or return the confidential information after the NDA’s term has expired.This clause’s purpose is to reduce the likelihood of a dispute arising from agreements made before the current arrangement.
• INDEMNIFICATION – This clause talks about the promise to repay the losses in the situation when the information has been leaked to the third party without any reasonable ground due to which the Disclosing Party has suffered the damages, in such case the party who has leaked the information has to indemnify the other party. This happens in the cases of monetary losses where the amount of damages can be calculated, either by parties, or can be left upon the discretion of the court to decide the appropriate amount of damages. The purpose of this clause is to indemnify the injured party.
• TERMS AND TERMINATION– The term outlines the time frame during which the NDA continues to remain in force. It specifies the time frame for which the parties must keep certain information confidential. whereas the termination clause specifies the circumstances in which the NDA may be terminated before the term’s expiration. It may include provisions for voluntary termination by mutual agreement or termination if one party violates the terms of the contract.
• RELIEF – There are some cases where no amount of compensation can cure the losses that have occurred to the disclosing party, for such cases the clause of injunctive relief[1] is inserted in the agreement. If someone violated the NDA, now the suffering party wants a court order telling the person to stop using their secrets or ideas then the party has to prove to the court that the unauthorized use of secrets has caused or will cause irreparable harm to him to obtain an injunction. The objective of this clause is to prevent irreparable harm caused to the party and maintain the status quo[2] of the injured party.Similarly party can also opt for equitable relief [3] and other appropriate options to restrain any breach caused.
• COVENANT/OBLIGATION OF PARTIES– This clause mentions all the duties and obligations of the parties, either mutually agreed between the parties or by the will of the disclosing party. This clause includes subclause like: Without prior written consent, the parties shall not disclose any Confidential Information to any Unauthorized Person, to take due diligence and necessary precautions regarding the protection of the confidential information, work together to secure the information, not to use the confidential information for their gain/ profits, etc. Purpose of this clause
• DISPUTE RESOLUTION AND GOVERNING LAWS – Under this clause parties decide what will the method for resolving any dispute aroused between them and what jurisdiction will be followed to resolve such dispute if damages are quantifiable[4] , parties can opt for the method of arbitration but when a matter has been filed under Specific Relief Act[5] then it cannot be filed before the arbitrator as the arbitrator does not have the authority to deal with it in such case one should continue the legal proceedings under Specific Relief Act.

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MISCELLANEOUS CLAUSES/ BOILERPLATE CLAUSES

• SEVERABILITY / PARTIAL INVALIDITY– This clause is being added so that If any provision of the agreement becomes invalid or unenforceable the remaining agreement shall not get affected purpose of this clause to protect the overall purpose of the agreement.
• WAIVER/RESERVATION OF RIGHTS–In cases where some breach was done by one party and the other party did not object to it at that time. it does not means that he waived off his rights therefore an action can be taken against it in the future as well[6]. which means any indulgence or relaxation given by disclosing party at the moment should not be taken as a waiver.
• ASSIGNMENT–Assignment clauses forbid the transfer of an agreement’s rights and obligations, are common in contracts. In most cases, both parties should be able to agree that the other party’s approval of an assignment won’t be unreasonably withheld or delayed
• ENTIRE AGREEMENT- This clause stipulates that only the information contained in the NDA be taken as binding. This indicates that any prior agreements are superseded by the NDA. Additionally, it ensures that only statements included in the NDA can be relied upon, its purpose is to protect both parties from misrepresentation from prior discussions.

CONCLUSION

 In conclusion, a Non-Disclosure Agreement (NDA) is a crucial instrument for safeguarding private data and developing trust between parties. The effectiveness of the agreement is ensured by crucial clauses like definition, term and termination, indemnification, and parties obligations. Where clarity and enforceability can be improved by including clauses addressing dispute resolution and governing laws etc. Parties can confidently safeguard their sensitive information and uphold confidentiality by carefully going through the comprehensive checklist of important clauses and reviewing the agreement thoroughly.

Author: Saumya Poddar, in case of any queries please contact/write back to us via email to chhavi@khuranaandkhurana.com or at Khurana & Khurana, Advocates and IP Attorney.

REFERENCES

[1] https://www.legalservicesindia.com/article/1588/Basic-Principles-of-Law-of-Injunctions-in-India.html

[2]https://indiankanoon.org/search/?formInput=%22status%20quo%22%20meaning%20doctypes%3Asupremecourt

[3] https://www.lawinsider.com/dictionary/equitable-relief

[4] https://www.legalservicesindia.com/article/296/Quantum-of-damages-in-Tort-Law.html

[5] The Specific Relief Act, 1963

[6] https://www.contractscounsel.com/t/us/nondisclosure-agreement