In this article Mohd. Hashim Miyan discusses the most important clauses in a confidentiality agreement.

Introduction

To ensure that the Proprietary or business information remains confidential one must enter into a confidentiality agreement. A Confidentiality agreement is used to make sure if you are going to share confidential information with another person or organization. It is useful if you will be given access to confidential information from another person or organization.

Confidentiality Agreement

Confidentiality agreement generally is Non-Disclosure Agreement (NDA) or NDA Contract with any person it transacts with. The confidential or Non-Disclosure Agreement is a legal document to prohibit the parties not to disclose the confidential information and discussions relating to the business from being disclosed to a third party. The confidentiality agreement is governed by the Indian Contract Act, 1872.

 

Many business relations and transactions begin with an NDA or Confidentiality Agreement. On Non-Disclosure Agreement a company shares its confidential information relating to Intellectual Property, Vendor information and other trade secrets with its employees, partners, investors, clients.

Types of Confidentiality Agreement

Types of Non-Disclosure Agreement are given below :

• Unilateral Non Disclosure Agreement – Under Unilateral or one-side NDA, one party discloses its information and the other recipient party is bound to protect that information.

• Bilateral Non-Disclosure Agreement – on the other hand, bilateral NDA is also Known as a mutual non – disclosure agreement, in which both the parties disclose confidential information and both are accountable to protect that confidential information.

• Multilateral Non-Disclosure Agreement – there are three or more parties in a multilateral NDA where at least one of the parties anticipates disclosing information to the other parties and requires that the information is protected from further disclosure.

These types of agreements are more reliable for joint ventures, etc. Thus the confidentiality clause is the main part of the NDA agreement.

The need for the Confidentiality Agreement

As the name recommends, it is nothing more than a contract whose main motive is to safeguard any information which is confidential under the agreement. Any business entity shall sign a non-disclosure agreement in India if it is:

• Relating to a business idea or invention to a potential partner, investor or merchant.
• Appearing new item or technology to a prospective purchaser or licensee.
• Sharing monetary, advertising and other information on NDA with a prospective purchaser of your item.
• Accepting services from the company or individual who may approach some delicate information on NDA in giving those services.

Under the Confidentiality Agreement what kinds of information can be protected

Each information simply likes another licensed innovation that is viewed as unique, novel or creative. There is no compelling reason to ensure each sort of information under a piece of confidentiality information whether that information has just been made open or that information adds up to people in general learning. Each NDA will contain some meaning of what information is to be viewed as confidential. The party unveiling the information will need the definition to be expansive and cover all information revealed, while the recipient party will consult to have a particular and narrow definition. Regularly, the recipient party will ask the disclosing party to determine which specific information being disclosed is secret, and just such information is then treated confidentially. The disclosing party then again normally requests that all information unveiled, no matter what, or with a couple of explicit exemptions, be treated as confidential information. For example, if there is a dispute with respect to the revelation of the information between the parties, and the accused party can show to the court that they had a similar information preceding the consenting to of a similar agreement, the court can make them not responsible for divulgence of the information in a similar case.

Confidentiality agreement in different types of contracts

• Confidentiality agreement in case of Franchise

A franchisee, at the time of franchise agreement, is conscious of many trade secrets including confidential formulas and recipes and the manner by which the franchisor maintains the business.

The franchisor generally includes the clauses to protect all of the above information remains confidential in the following ways:

• Confidentiality Clause
• Confidentiality Deed
• Restraints
• Intellectual Property Licence Agreement

Confidentiality agreement in a patent agreement

To protect an invention, make a Unilateral Patent non-disclosure agreement, the owner of the invention chooses to disclose the business techniques, thoughts, models and so on to potential financial specialists, engineers and such other professionals. They further need the confidentiality agreement to conceal the unexecuted information for a product.

Indeed, even proprietors of patented innovation can succumb to harms of misused information and it is suggested that an NDA is utilized during the licensing procedure. The disclosing party ought to host the accepting party, sign the documentation first while clearly expressing the confidential idea of the current information.

Important clauses of the Confidentiality Agreement or NDA

Flaunty treatment of the Confidentiality Agreement could result in legal headaches for the company to down their image. Businesses which are unconscious of the imperative clauses of a Non-disclosure agreement in India, will in general, use template or sample agreement accessible on the web, which frequently need structure and cardinal stipulations.

There are some essential clauses that must be added to each non-disclosure agreement in India, regardless of whether it is a bilateral NDA or unilateral NDA:

• Definition of Confidential Information Clause

Without any doubt, the most crucial component of non-disclosure is the definition of confidential information. This statement obviously illuminates what data isn’t to be disclosed. It is relevant to clearly crystalize what is viewed as confidential. The information ought to be explicit and rule out ambiguities. This is the general purpose of the understanding appropriate here.

• Parties Clause

In this clause, it is necessary to expose the parties name and their representative who shall have access to the confidential information shared at the time of due diligence and business discussions.

• The term of Confidential Clause

There should be a clearly defined time frame for every non-disclosure agreement. Some may need it for a limited period and the others may need it for infinite period thinking about that anytime why such confidential information be uncovered. However, from the point of view of the receipt of the confidential information, it will end up being an exorbitant undertaking to protect the confidential information for an uncertain period. Confidential information clause is the most critical NDA clause.

Next question is when does the agreement end and for how long the information needs to stay confidential?

Commonly, this completely relies on the business you are in and the sort of information that is shared. In some business type, a couple of years might be acceptable in light of the fact that the technology may change so quickly as to render the information worthless after a timeframe. The most potential partners prefer 12 – 18 months and generally not over two years.

• Use of Confidential Information Clause

This clause defined the permitted use of boundary where is the intended use of shared confidential information. It clearly states what is the motive of sharing the information and where all it can be used. The scope of usage of confidential information clause should mention the name of all the third parties who will be dealing with confidential information.

• Mandatory and Legal Disclosure Clause

At some point, even though the Recipients are more careful and reliable for the confidential information may be legally bound to disclose the information they agreed to keep confidential under this type of agreement to a government agency, administrative or the courts.

In these type of examples, there should be a clause in the non-disclosure agreement to protect both the parties acknowledging that a legal obligation to disclose is not a violation of the agreement.

• Arbitration Clause

The remedy on the breach by the Recipient must be clearly expressed in the arbitration clause of the Non-disclosure Agreement. On the off chance that the parties wish to resolve their conflict by means of alternative dispute resolution like Arbitration, the NDA must indicate arbitration terms, the seat of arbitration and number of arbitrators that can be designated. NDA dispute resolution clause expresses that in a situation, where the dispute arises between the parties to the agreement, they settle the dispute through the pre-chosen alternative dispute mechanism. The mechanism selected by the parties is generally arbitration and in this way, the dispute resolution clause is otherwise called NDA arbitration clause.

• Jurisdiction Clause

This clause states which court will entertain the jurisdiction over the parties in case a future dispute arises between them. No matter how well the contract is drafted a dispute can always arise in the course of business. Hence having a jurisdiction clause is very important. 

• The Clause on return or destruction of Confidential Information

After the expiry of the agreement, the receipt of the confidential information either returned or destroyed by the Recipient party. The non-disclosure agreement ought to contain a clause stipulating precisely how and when this ought to happen. This can generally rely upon the conditions of your relationship.

Due to the advent of technology, it is difficult to destroy or return all information which is shared electronically.

But in this type of clause, the Recipient Party should prevent from using the information in the normal course of business or sharing it in future if it is difficult to erase or return the shared confidential information.

Conclusion

Confidentiality is an important component of privacy legislation and a cornerstone for every business entity. The clauses defined above gives the structure for the confidentiality agreement which helps to ensure both the parties to understand their obligations, encourages respect in their handling of confidential information, and provides valuable reassurance to the disclosing party.