Read Part 1 of the series – 5 Important IP Contracts
Here is the fourth article of the series, 5 Important IP Contracts. In this article, Varshita Dogra of VIPS discusses Confidentiality or Non-Disclosure Agreements.
Confidentiality or Non-Disclosure Agreements
Much like how a distribution company cannot keep its trucks in the garage to keep them from being involved in an accident on the highway, a startup company cannot keep its ideas locked away from the business partners who can make it a success. The distribution company protects its assets (trucks) with vehicle insurance so that they can use them without exposing the company to financial ruin. A start up company can protect their asset (intellectual property) in several ways, one of which is by entering into a non-disclosure agreement with third parties.
A Non-Disclosure Agreement is a legally binding contract signed between parties allowing them to share their confidential information in the form of intellectual property with each other by ensuring that such information is not disclosed to third parties. The purpose of an NDA is the protection of trade secrets, technology, patents, know-how, and other such information which is disclosed during commercial transactions. Restricting the use of such information is also necessary to ensure that the party receiving such information does not take undue benefits from such disclosure. An NDA can be one way, mutual or multilateral, based on the number of parties disclosing confidential information.
Contractually mandating strict confidentiality is probably the most crucial aspect of any agreement that pertains to intellectual property. As technological innovation thrives and competition increases, it is critical for companies to be extremely proactive, take extraordinary security measures, and remain vigilant to potential intrusions or misappropriation of data.
In India, there is no specific statutory enactment for the applicability and enforceability of an NDA, hence it is governed by the provisions of the Indian Contract Act, 1872. As an IP lawyer, you should make sure that you convey to your client, the importance of having a confidentiality agreement. Ambiguity in an NDA should be avoided at all costs. An NDA should be a strong contract clearly imposing a duty to maintain confidentiality with significant consequences on failure to comply, to serve as a deterrent for malicious behavior.
Confidentiality Clause v. Separate Confidentiality Agreement
It is not necessary for the parties to enter into a separate NDA to ensure confidentiality. This purpose can be solved by simply including a confidentiality clause in general agreements. The different types of contracts discussed here, i.e. licensing, franchising, assignment and distribution agreements, generally have a confidentiality clause. A lot of sensitive information about the parties is shared during the term of such agreements. To protect the same, it is essential that every such agreement has a confidentiality clause. It should provide that the obligations with respect to the confidential information would survive even after termination or expiration of term of the agreement so that the parties do not exploit the confidential information after the termination or expiration of term.
Advantages of a Confidentiality Clause
The advantages of having a confidentiality clause instead of a full fledged agreement are as follows :
- Convenience – Instead of having to draft two separate agreements, you can do it all in one. The parties have to sign only one document rather than several.
- Streamline – Combining different clauses into a single agreement can help streamline everything. For example, by including confidentiality clause in an employment contract, the company is expressly notifying the employee in the first instance about his duty to keep information confidential.
Issues and Drawbacks of a Confidentiality Clause
Although, a confidentiality clause can be enough to ensure confidentiality, there are certain issues and drawbacks that usually occur which can be avoided by entering into a separate NDA :
- Can lead to confusion – The purpose of a confidentiality clause is to prevent disclosure of information, although usually IP agreements deal with the disclosure of information. There is scope of confusion for a person reading the agreement as to the objectives of the agreements. Confusion can also arise with respect to time duration for which such a clause will last. For confidentiality clause, the disclosing party would want an indefinite time duration whereas that won’t be the case with any other clauses in an IP agreement.
- Risk of invalidating entire agreement – Any breach due to wrongful actions on part of the disclosing party can threaten the validity of the whole agreement. This risk can be avoided by entering into a separate NDA instead of having a confidentiality clause in the agreement. For example: If an employee of the disclosing party treats confidential information carelessly and it gets published in the public domain, the non-disclosure clauses may no longer be valid as the information which was meant to be protected is no longer confidential. This could impact other provisions in the agreement which are dependent on those non-disclosure clauses. Although this situation can also be avoided by including a severance clause in the agreement that protects rest of the agreement even if one party of it is invalidated.
Benefits of a separate NDA
An NDA normally, has specific clauses which may or may not be suitable to be included in any other type of agreement. For example, an NDA could contain a ‘no license granted’ clause which expressly states that sharing of confidential information shall not construe as granting license to the confidential information. Now, such a clause cannot be included in a licensing agreement where confidential information, other than the IP being licensed, is shared. A confusion can arise regarding what IP is being licensed and what is not, and what is to be protected or not as confidential information under the agreement.
Some agreements work better with non-disclosure clauses whilst others can present a conflict. For example, combining an employment agreement with non-disclosure clause is normally a good idea as you’re providing in written form, an implied duty not to disclose confidential information. On the other hand, combining a non-competition and non-solicitation agreement with non-disclosure clause can prove to be highly risky.
Certain points to keep in mind while deciding whether to enter into a separate agreement or to have a confidentiality clause in the main agreement are as follows :
- Main objectives of the agreement, do they conflict with objectives of an NDA or are they in support of the agreement
- Whether the jurisdiction or governing law intended to be used in the main agreement would legally support the objectives of the confidentiality clause
- Whether the particulars of a confidentiality clause can be severed from the rest of the agreement
Some Key Definitions
There are certain terms which are to be necessarily defined under an NDA or a confidentiality agreement in order to avoid disputes in the future between the parties.
Defining the confidential information
You must ensure that the agreement clearly stipulates what is included in the confidential information to ensure that the parties understand the scope and extent of their duties with respect to protecting the information being provided to them. An itemised list of information such as trade secrets, business plans, customer or supplier lists, inventions, copyrights, software and any other information that should reasonably be recognised as confidential information by the parties, should be included in the agreement. A major reason why litigation relating to confidential information occurs is because it is not clear as to what is or is not included in confidential information. Only the information not available in the public domain and not known to the receiving party before entering into the NDA can be protected under it.
The obligations and duties of the party receiving the confidential information and the liability for not fulfilling such obligations.
The scope of confidentiality obligation on the receiving party must be set forth clearly. Some of the obligations are as follows :
- Keep secret the confidential information and documents received and not to disclose the content or object to third parties.
- Describe the exclusive permitted use for which the information is being shared.
- Access to other people (personnel, representatives or agents) in confidence for carrying out their duties for the permitted purpose of use with knowledge of the obligations made in the agreement.
- Assumption of full liability for acts or omissions made by the party’s personnel, representatives or agents
- In the event of termination of agreement, to hand over or destroy all the confidential information and documents to the disclosing party without keeping any copies or summaries. As handing over or destroying the information or documents has become difficult in today’s day and age, NDAs have a clause stating that the receiving party may retain the information for ‘document retention’ but the same shall not be accessible in the daily course of business.
- Exclusion from confidentiality treatment – Obligation to disclose confidential information in certain circumstances such as when the administrative or legal authority requires the receiving party to disclose the information.
The remedies available on breach of the obligations and duties under the confidential agreement must be clearly stated. Generally, the party acquires a right to proceed legally in a certain prescribed manner in case of breach. A clause that gives right to injunctive relief can also be included in the agreement. It is essential to specify the legal course to be taken. Arbitration is usually the simplest and cost effective method to resolve dispute, in which case, the agreement shall specify the appointment, power and other necessary information for resolution of dispute. Generally, in cases where there is a confidentiality clause in the agreement, a dispute arising out of failure to keep confidentiality would be resolved in the same manner as any other dispute arising under the agreement.
The term of the contract
Every Confidentiality Agreement must specify the term for which the information so being shared is to be maintained confidential. In instances where a confidentiality clause is added to commercial contracts instead of a separate NDA, you must ensure that, irrespective of the duration of the agreement, the confidential information is afforded protection from disclosure indefinitely even after the term of the contract ends. The term of an NDA also depends on the industry standard and the type of information being conveyed.
Instances when entering into an NDA would be beneficial
Certain instances when entering into an NDA would be beneficial for the parties are as follows :
- Before getting into negotiations for licensing or transfer agreement for a new product or technology
- Research & Development Projects
- Employer-employee agreement as proprietary information disclosed by the company is private. Usually for such agreements, the company prefers adding a confidentiality clause in the employment agreement instead of separate agreement
- Presenting innovative ideas, products or technologies with potential business partners
- Entering into any new business deal such as hiring vendor, supplier, consultant or any sort of collaboration to start a new project
Confidentiality agreements are common in industries where the work is based on intellectual ideas. This would include the entertainment industry and fashion industry.
Read Part 2 of the series – 5 Important IP Contracts
Read Part 3 of The Series – 5 Important IP Contracts
This Agreement is made and entered into as of ________________by and between __________a Company incorporated under the Companies Act 1956 and having its office at __________________________, hereinafter referred to as “COMPANY”, of the FIRST PART,
Indian Institute of Technology, Bombay, a research and educational institution in technology and engineering disciplines established by a special act of Parliament of Republic of India having its office at Powai, Mumbai-400 076, India, hereinafter referred to as ‘IITB’, of the SECOND PART.
Company and IITB are collectively referred to herein as ‘Parties’.
Whereas Company is engaged in the business of ______________________.
Whereas IITB is among the premier research and development (R&D) institutions in India and a centre of excellence in higher learning, research and development.
Whereas both Parties hereto have agreed to jointly work on Projects in topics of mutual interest as defined below and develop Products under terms and conditions mutually agreed upon by the Parties and
Whereas the Parties desire to record the broad terms and conditions that are jointly accepted and agreed to in this Agreement as contained hereunder.
(a) ‘Projects’ shall mean and include the individual Projects under the Agreement, the terms and conditions for execution of each of which shall be jointly agreed upon, in writing.
(b) ‘COMPANY know-how’ shall mean and include all know-how of methods, material, software, designs, patterns, formats, proprietary technical literature, and information developed, owned and provided by COMPANY, which are required for the Projects.
(c) ‘IITB know-how’ shall mean and include all know-how of methods, material, software, designs, patterns, formats, proprietary technical literature, and information developed, published or otherwise owned and provided by IITB, which are required for the Projects.
(d) ‘COMPANY Personnel’ shall mean the personnel or research and development engineers of the Company deputed for the Projects.
(e) ‘IITB Personnel’ shall mean the faculty members and / or scientists and / or students and / or staff of IITB deputed for the Projects.
(f) ‘Principal Investigator’ shall mean the individual, employee of IITB, having the responsibility of conducting and supervising the Project(s) under this agreement.
(g) ‘Co-Investigator’ shall mean the individual(s) participating in the Project(s) under the supervision of Principal Investigator, including, but not limited to, students, employees, representatives, and agents.
(h) ‘Project Investigator Team’ shall comprise the Principal Investigator and the Co-Investigators participating in the Project(s) under this agreement.
(i) ‘Products’ shall mean the results, software, hardware or other deliverable generated as a result of work to meet the objectives of the Projects funded by COMPANY.
(j) ‘COMPANY-IITB Research Programme’ shall mean the activities envisaged under this Agreement.
- ITEMS / AREAS OF COLLABORATION
The parties agree to collaborate in the following said items/areas:
(a) ___________ (b) __________
(c) ___________ (d) __________
- SCOPE OF AGREEMENT
COMPANY and IITB shall work jointly to carry out Projects in the above said items / areas for developing Products and with specific objectives, terms & conditions to be jointly agreed under the Agreement.
- ACTIVITIES AND OBLIGATIONS OF COMPANY
(a) COMPANY shall be responsible for providing the funds required for the Projects, as identified in each Project. COMPANY may depute appropriate COMPANY personnel to participate in the Projects, as per mutual agreement.
(b) COMPANY will provide COMPANY know-how, which may be deemed necessary for the Projects.
(c) COMPANY shall take reasonable steps to prevent IITB know-how, which are meant only for the purpose of conducting the Projects, from unauthorised usage or falling into unauthorised hands. COMPANY shall ensure that COMPANY personnel working on projects sign appropriate non-disclosure agreements to prevent unauthorised usage or disclosure of materials or information received under this Agreement.
- ACTIVITIES AND OBLIGATIONS OF IITB
(a) IITB shall strive to complete the activities in the said items/areas and deliver the Products to COMPANY as per the individual Project objectives and schedules as agreed upon.
(b) IITB shall take reasonable steps to prevent COMPANY know-how,
which are meant only for the purpose of conducting the Project(s), from
unauthorised usage or falling into unauthorised hands. IITB shall ensure that IITB personnel and the Project Investigator Team working on Projects sign appropriate non-disclosure agreements.
- FINANCIAL AND OTHER ARRANGEMENTS
The consideration payable to IITB for individual Project cost and the schedule of payment would be as mutually agreed upon for each Project. Any other Project related payment will be as per mutual agreement given in writing. Financial arrangements related to Intellectual Property Rights sharing will be as spelt in clause 11.
The Parties hereto shall not transfer or assign any of their rights and obligations under this Agreement to any other party without obtaining prior consent in writing from other Parties hereto.
- TERM / DURATION
This Agreement shall be initially valid for a period of ____years from the date of signing of this agreement. The Parties may extend the term of this Agreement for additional periods as desired under mutually agreeable terms and conditions which shall be reduced to writing and signed by the Parties.
Any of the Parties may terminate this Agreement by serving a written notice on the other Parties____months prior to the intended date of termination provided that the termination by either of the parties shall not relieve that party of its obligations accrued prior to such termination, under a specific Project.
All communications by COMPANY involving financial, administrative and other matters shall be sent to Dean R&D, IIT Bombay. All information of scientific and technical nature may be exchanged directly between the Project Investigator from IIT Bombay and appropriate COMPANY personnel as identified in writing, for the Project concerned.
- INTELLECTUAL PROPERTY AND COMMERCIAL RIGHTS
(a) Title to all inventions, discoveries or developments made solely by IITB inventors resulting from the Research Programme shall reside in IITB; title to all inventions, discoveries and developments made solely by COMPANY inventors resulting from the Research Programme shall reside in COMPANY; title to all inventions, discovery, development or other intellectual property including but not limited to copyrights, patents and industrial designs made jointly by IITB and COMPANY resulting from the Research Programme shall reside jointly in IITB and COMPANY.
(b) COMPANY will be given the first right to commercially exploit any development, for a period of one year from the date of completion of the Project, resulting out of the research conducted under this agreement. Benefits arising out of such commercialisation shall be shared between IITB and COMPANY under mutually agreed terms given in writing. In the event that COMPANY is unable to commercially exploit the said development within this specific time period of one year, then IITB will be free to assign the development, know how to any other third parties. The benefits accruing from such assignments will be shared between IITB and COMPANY under mutually agreed terms.
(c) In the case of joint Intellectual Property between IITB and COMPANY, neither party may assign any rights to any third parties without the consent of the other party, which shall however not be unreasonably withheld.
(d) Any benefits accruing from assignment of rights to third parties will be shared between IITB and COMPANY under mutually agreed terms.
(e) The sharing of benefits between IITB and COMPANY as spelt in Clause 11 b to d is for the Intellectual Property, arising from the results of the Projects undertaken under this Agreement, being commercialised and exploited in India only. Any commercialisation of results and Intellectual Property arising out of the Projects under this Agreement outside of India, by the COMPANY shall be done with explicit consent of IITB and the benefit accrued from such commercialisation shall be shared between IITB and COMPANY under mutually agreed terms.
(f) Any modification / further development of the Results obtained from the Projects under this agreement, by the COMPANY shall be done with the explicit written consent of IITB.
(a) It may be necessary for IITB and COMPANY to disclose to or exchange with each other proprietary information relating to IITB know-how and COMPANY know-how, which are confidential and proprietary. The disclosing party shall advise authorised personnel of the receiving party appropriately regarding the confidential nature of the information disclosed. The Party receiving such confidential or proprietary information shall not, unless specifically permitted in writing by the Party providing the said information, disclose in whole or part any such confidential or proprietary information or divulge any information thereon to any person other than its Personnel for fulfilling the purpose of this Agreement. The disclosure to any such Personnel as aforesaid, of any such confidential or proprietary information, shall be in confidence and only to the extent necessary for carrying out the obligations herein.
(b) The obligations of confidentiality set forth above shall be applicable for two years from the termination of the relevant Agreement
(c) The obligations of confidentiality however shall not apply to information that:
- is not disclosed in writing or reduced to writing and marked with appropriate confidentiality legend within thirty (30) days after disclosure;
- is already in the recipient party’s possession at the time of disclosure;
iii. is or later becomes part of the public domain through no fault of the recipient party;
- is received from a third party having no obligations of confidentiality to the disclosing party;
- is independently developed by the recipient party; or
- is required by law or regulation to be disclosed.
- ARBITRATION, APPLICABLE LAW AND JURISDICTION
(a) Any disputes between the parties shall be resolved by mutual discussions. Unresolved disputes, if any, shall be subject to resolution by a panel consisting of the Dean R&D, IITB, who shall represent IITB, and Chairman / Managing Director, COMPANY, who shall represent COMPANY. If the dispute cannot be resolved by the said panel, the matter shall be resolved by arbitration in accordance with the Arbitration and
Conciliation Act, 1996. The venue of arbitration shall be Mumbai. The decision of the
arbitrator shall be binding on both parties
(b) This agreement shall be governed by the Laws of India and subject to the jurisdiction of Courts in Mumbai.
(a) The terms and Conditions for publication of the research results in journals / conferences, and / or patenting or copyrighting the Products shall be mutually agreed upon.
(b) Any addition, deletion and / or alteration to this Agreement may be effected with a written agreement of all the Parties to this Agreement concerning the amendments. A document containing the additions, deletions and/or alterations, and signed by all Parties hereto, shall form an annexure to and be deemed to be a part of this Agreement.
(c) The headings of various clauses herein are inserted for convenience of reference and are not deemed to affect the meaning or construction of relative provisions.
(d) IITB will have the right to continue to utilise the intellectual property generated as part of the R&D work carried out under this project for its research and for teaching purposes.
(e) This Agreement and its Appendices constitute the entire agreement among the Parties’ and supersede all other representations, understandings or communication whether written or verbal, with respect to the subject matter hereof.
- FORCE MAJEURE
Neither party shall be held responsible for non-fulfillment of their respective obligations under this Agreement due to the exigency of one or more of the force majeure events such as but not limited to acts of God, War, Flood, Earthquakes, Strikes not confined to the premises of the party, Lockouts beyond the control of the party claiming force majeure, Epidemics, Riots, Civil Commotions etc. provided on the occurrence and cessation of any such event the party affected thereby shall give a notice in writing to the other party within one month of such occurrence or cessation. If the force majeure conditions continue beyond six months, the parties shall jointly decide about the future course of action.
IN WITNESS WHEREOF, the Parties hereto have set and subscribed their respect; hands and seal on the day, month and year first herein above mentioned.
FOR AND ON BEHALF OF IITB FOR AND ON BEHALF OF COMPANY
IN THE PRESENCE OF IN THE PRESENCE OF