This article has been written by Uditi Chopra, pursuing the Diploma in Advanced Contract Drafting, Negotiation and Dispute Resolution from LawSikho.
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Intellectual Property Rights (IPRs) comprise a bundle of rights to protect an individual or an organisation against the expression of any idea, product, process, logo or designs etc through different modes such as trademarks, patents, copyrights and designs as provided under various laws in India such as Trade Marks Act, 1999, the Patents Act, 1970 (as amended in 2005), the Copyright Act, 1957, the Designs Act, 2000.
Registration of Intellectual Properties such as trademarks, patents and copyrights signify ownership, rights and title of the owner thus providing due protection from any misuse and unauthorised use by any third party. However, an individual/organisation may require further protection while entering into commercial agreements or initiating discussions with potential investors, clients, employees or franchisees in the form of Confidentiality or Non-Disclosure Agreement, (NDAs) and Non-Compete Agreements.
Non-Disclosure Agreements are useful tools to maintain confidentiality for any individual or business organisation planning to discuss or disclose critical and sensitive information pertaining to their business or business ideas with another party. NDAs define all the information that is required to be kept confidential and imposes obligations and duties on the recipient to maintain confidentiality. In simpler contracts clause of confidentiality may be included in the main agreement, however, in more complex business deals, organisations prefer to enter into a separate agreement for non-disclosure, even before the parties begin any kind of discussions between each other.
Non-Disclosure Agreements may be useful in the following situations:
- While discussing a script or any other literary work with a third party so that they cannot use the idea or make it public for their own benefit.
- It can be used within an organisation, that is, between the company and employees, to protect employees from disclosing any kind of matter with any other party.
- In cases of Mergers and Acquisitions, while hiring consultants for the process, Non-Disclosure Agreements provide a safety net to the concerned companies from any kind of leak of sensitive information.
- Further, in cases of manufacturing of products, wherein patents of the product and process are involved, companies may use Non-Disclosure agreements wherein they have to discuss the process with potential suppliers or third parties.
- Non-Disclosure Agreements are most important in cases where the Intellectual Property may not be registered. Trade secrets of a company or a restaurant wherein the recipe of a product and its process is pertinent to the existence of a company.
Protection of data and information is the most important criteria for businesses today, especially for organisations and start-ups, that are built upon their trade secrets, processes, product or such other ingredients that are necessary to be kept as a secret. Non- Disclosure Agreements serve this very purpose and ensure that businesses can maintain their trade secrets.
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In cases where only one of the parties has to reveal sensitive and confidential information, then the parties may consider signing a one-way confidentiality agreement instead of a non-disclosure agreement wherein. The purpose of both the non-disclosure agreement and confidentiality agreement is the same.
Organisations may also use a letter of confidentiality for less complicated matters or else it may also be for initiating confidentiality or a non-disclosure agreement.
These agreements are entered, usually between an employer and an employee whereby the employer restrains the employee from working with its competitor or start their own business in the same market segment, post-termination. In most cases, the non-compete clauses are included within the main agreement but in more complex transactions, a non-compete agreement may be entered into, separately. This helps the organisations in protecting their trade secrets, marketing strategies, valuable information linked to Intellectual Property or details of clients and customers.
The enforceability of non-compete agreements or clauses is a contentious issue in the Indian courts of law; however, it is still widely used in commercial transactions and employee agreements. According to section 27 of the Indian Contract Act, 1872, contracts restraining trade, business or any profession is void ab initio, however, there are exceptions to this provision, one being when an organisation sells goodwill of a business with a buyer to refrain from carrying on a similar business within specified local limits, wherein the restrictions are reasonable. Thus, to pass the test of enforceability, non-compete agreements or clauses have to be reasonable and fair.
Trade Secrets, Trademarks and Contractual Agreements
Unlike patents and trademarks, trade secrets are not registrable with any authority or statutory body. Trade secrets are confidential information having commercial value that is not known to the public and all efforts are made by the organisation or owner to maintain the secrecy of such information. Some examples of trade secrets would include technical know-how, business practice, manufacturing process, distribution model or marketing models of an organisation. These are kept as a secret as they give a competitive advantage to the business from the competitors and provide an edge in the market. Therefore, businesses take all efforts to keep trade secrets within the organisation.
Due to the nature of this intellectual property (i.e. trade secrets) organisations have to protect it through agreements. Thus, non-disclosure agreements, confidentiality letters and agreements and non-compete agreements are of immense importance in the arena of businesses and up-coming start-ups. If the trade secrets are not protected an organisation may lose its advantage and eventually run out of business.
On the other hand, trademarks are symbols, logos, designs, words or a combination of these that can be registered and helps in identifying the product or service that it represents. Registration helps in protecting the ownership and rights of the business or product. Trademarks are public and used for advertising and marketing for creating a brand and increasing the recognition of a product or the company. Due to the very nature of this intellectual property, it is out in the public domain and one needs to register to claim ownership over the same as it reduces hassles during court proceedings, if any. Yet, companies prefer to protect the registered intellectual properties with separate agreements or confidentiality clauses in their commercial transactions and agreements.
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Legal Advice for Contractual Agreements
Individuals or businesses entering into any kind of deal or commercial transaction involving sharing of confidential information must take all measure to protect themselves. The law and the contractual intricacies can be very complex for a layman to understand any underlying meanings within the agreements. It is essential that businesses take professional legal advice while discussing any commercial transaction or deals and further while drafting the contracts.
The usage of agreements to protect Intellectual Property Rights has expanded phenomenally in today’s era. In the present scenario where information has become the most important resource for businesses, contracts have become a vital tool for protecting sensitive and confidential data and information of a company. Forging of a contractual arrangement provides a safety net to the businesses and thus creates an enabling platform for businesses to initiate discussions of commercial transactions between companies. Confidentiality agreements provide reassurance to businesses to be able to share critical information of their businesses and eventually enter into commercial contracts with other businesses or individuals.
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