Clauses Every Confidentiality and Non Disclosure Agreement Should Include

Sharing sensitive information is often unavoidable when businesses negotiate, collaborate, hire external professionals, or explore new commercial opportunities. Without clearly established rules, however, the parties may have different expectations about how that information can be used or disclosed.

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Understanding Confidentiality and Non Disclosure Agreements

A confidentiality and non-disclosure agreement, commonly called an NDA, is a contract under which one or both parties agree to protect specified information and use it only for an agreed purpose.

NDAs are commonly used when businesses discuss partnerships, investments, potential acquisitions, products, services, or other arrangements that require sensitive information to be shared.

The structure of the NDA depends in part on how information flows between the parties.

A three-in-one protection agreement combines three types of restrictions into a single contract: a Non-Disclosure Agreement (NDA), a Non-Compete Agreement, and a Non-Circumvention Agreement. It is sometimes referred to as an NCND, or non-circumvention, non-disclosure agreement.

This type of agreement is designed for situations where a "Company" shares valuable confidential information, business contacts, or commercial opportunities with another party, referred to as the "Confidant".

The agreement aims to prevent the Confidant from disclosing the protected information, using it to compete against the Company, or bypassing the Company to pursue its contacts or business opportunities directly.

A mutual non disclosure agreement, also known as a two-way NDA, is designed for situations where both parties may disclose and receive confidential information. Unlike a one-way NDA, the confidentiality obligations apply equally to both sides, meaning each party must protect the sensitive information received from the other and use it only for the agreed purpose.

A mutual NDA can also be used when only one party is expected to disclose confidential information. In that situation, the agreement does not require the other party to disclose anything, even if it is a mutual NDA.

A one-way non-disclosure agreement (also called a unilateral NDA or one-directional confidentiality agreement) applies where confidential information is shared by only one party with another. The party providing the information is known as the "Discloser," while the party receiving it is the "Recipient".

Under the agreement, the recipient undertakes to protect the information from unauthorised disclosure and use it solely for the purpose agreed by both parties.

Clauses to Include in a Three-in-One Protection Agreement

Though what to include in any confidentiality and non-disclosure agreement will largely depend on those involved in it, the following are some essential clauses to expect in a three-in-one protection agreement:

Parties and definitions: Identify the Company and Confidant and define terms such as confidential information, business opportunities, protected contacts, and restricted activities where relevant.

Purpose of the agreement: Explain the business relationship and why the Company is providing confidential information, contacts, or opportunities to the Confidant.

Governing law and jurisdiction: Identify the law governing the agreement and the jurisdiction in which relevant disputes may be addressed.

Definition of confidential information: Identify the information the Company considers confidential and wants protected against unauthorised disclosure or use.

Confidentiality obligations: Require the Confidant to protect the Company's information and prevent unauthorised access or disclosure.

Permitted use: Restrict the Confidant's use of confidential information to the specific business purpose agreed by the parties.

Permitted disclosures: Specify when the Confidant may disclose information to authorised representatives or where disclosure is legally required.

Exclusions from confidential information: Identify information that is not subject to the confidentiality obligations.

Return or destruction of information: Establish what happens to confidential documents, data, and other materials when the relationship ends, or the Company requests their return.

Intellectual property and ownership: Confirm that the Company's intellectual property, confidential information, contacts, and other proprietary materials remain its property unless expressly agreed otherwise.

Confidentiality period: Specify how long the confidentiality obligations continue.

Non-compete: Where legally permitted, establish the competitive activities the Confidant is prohibited from undertaking during the agreed restricted period.

Because non-compete restrictions can be subject to significant legal limitations, this clause should be carefully tailored to the applicable jurisdiction.

Non-circumvention: Prevent the Confidant from bypassing the Company to deal directly with protected contacts, customers, suppliers, investors, intermediaries, or business opportunities introduced through the relationship.

Protected contacts and business opportunities: Where relevant, identify or define the categories of contacts and opportunities covered by the non-circumvention obligation.

Non-solicitation: Where appropriate and legally permissible, restrict the solicitation of specified customers, employees, business partners, or other protected relationships.

Term and termination: State how long the agreement remains effective and whether the confidentiality, non-compete, non-circumvention, or other obligations survive termination.

Remedies for breach: Specify the contractual remedies that may be available for unauthorised disclosure, prohibited competition, circumvention, or other breaches, subject to applicable law.

Dispute resolution: Establish the process for resolving disagreements, such as negotiation, mediation, arbitration, or litigation.

Miscellaneous provisions: Address matters such as amendments, assignment, severability, waiver, notices, entire agreement, and other general contractual provisions.

Signatures: Provide appropriate signing blocks for the Company and Confidant.

Clauses to Include in a Mutual NDA

A mutual NDA protects both parties because each party may disclose and receive confidential information. Most of the core clauses remain relevant, but the language should impose corresponding obligations on both parties.

Parties and definitions: Identify both parties and define them as parties that may act as either Discloser or Recipient.

Purpose of the agreement: Explain the business purpose for which both parties may exchange confidential information.

Definition of confidential information: Define the information that either party may disclose and that the agreement will protect.

Exclusions from Confidential Information: Identify information that falls outside the confidentiality obligations, regardless of which party disclosed it.

Mutual confidentiality obligations: Require each party to protect confidential information received from the other party.

Mutual use restrictions: Limit each party's use of the other's information to the agreed purpose.

Permitted disclosures: Explain when either party may disclose information to employees, advisers, contractors, affiliates, or other authorised representatives.

Compelled disclosure: Establish procedures for either party when disclosure is required by law, court order, or a regulatory authority.

Return or destruction of information: Provide rules for returning or destroying confidential information received from either party.

Confidentiality period: Specify how long each party must maintain confidentiality after disclosure and, where applicable, after the relationship ends.

Ownership and intellectual property: Confirm that each party retains ownership of its own information and intellectual property unless a separate agreement provides otherwise.

No licence or transfer of rights: Clarify that exchanging information does not automatically grant either party intellectual property rights or a licence.

No warranty or representation: Where appropriate, establish whether either party makes warranties about the information it provides.

Term and termination: State when the mutual NDA begins, how long it remains in effect, and how it can be terminated.

Remedies for breach: Address the remedies available if either party violates its confidentiality obligations.

Governing law and jurisdiction: Identify the applicable legal framework and jurisdiction.

Dispute resolution: Establish how disputes between the parties will be addressed.

Miscellaneous provisions: Include appropriate provisions concerning amendments, assignment, severability, notices, waivers, and the entire agreement.

Signatures: Provide signing blocks for both parties.

Clauses to Include in a One-Way NDA

Parties and definitions: Identify the Discloser and Recipient and define important terms used throughout the agreement.

Purpose of the agreement: Explain why the Discloser is providing confidential information and the specific purpose for which the Recipient may use it.

Definition of confidential information: Clearly describe the information protected by the agreement, including relevant business, financial, technical, commercial, customer, or proprietary information.

Exclusions from confidential information: Specify information that is not protected, such as information already publicly available, previously lawfully known to the Recipient, independently developed, or lawfully received from another source.

Confidentiality obligations: Require the Recipient to protect the Discloser's information from unauthorised disclosure and take reasonable measures to safeguard it.

Permitted use: Limit the Recipient's use of confidential information to the purpose stated in the agreement.

Permitted disclosures: Explain whether and when the Recipient may disclose information to employees, contractors, advisers, or other representatives who need access for the permitted purpose.

Compelled disclosure: Address circumstances in which the Recipient is legally required to disclose confidential information, such as through a court order or regulatory requirement.

Return or destruction of information: State what the Recipient must do with confidential information and copies when requested by the Discloser or when the relationship ends.

Confidentiality period: Specify how long the Recipient's confidentiality obligations will continue.

Ownership and intellectual property: Clarify that disclosure does not transfer ownership of the confidential information or intellectual property to the Recipient.

No licence or transfer of rights: Where appropriate, state that providing information does not grant the Recipient a licence or other rights beyond the permitted use.

No warranty or representation: Where relevant, clarify whether the Discloser makes representations or warranties regarding the accuracy or completeness of the information provided.

Term and termination: Establish when the NDA takes effect and whether or how the agreement itself may be terminated.

Remedies for breach: Address the remedies that may be available if the Recipient breaches its confidentiality obligations, subject to applicable law.

Governing law and jurisdiction: Identify the law governing the agreement and, where appropriate, the courts or other forum with jurisdiction.

Dispute resolution: Specify how disputes will be handled, such as through negotiation, mediation, arbitration, or litigation.

Miscellaneous provisions: Include relevant contractual provisions concerning amendments, assignment, severability, waivers, notices, entire agreement, and similar matters.

Signatures: Provide appropriate spaces for the parties to sign and date the agreement.

Conclusion

There is no single set of clauses that will be appropriate for every non disclosure agreement template.

A one-way engagement may require different protections from a mutual exchange of information, while some commercial relationships may also justify carefully considered non-compete or non-circumvention provisions.

The final confidentiality and non disclosure agreement should therefore correspond with the actual relationship and applicable law.