Non-disclosure agreements (NDAs) are essential for safeguarding your business's confidential information. Whether you’re discussing a potential partnership, hiring employees, or collaborating with contractors, NDAs help ensure your valuable secrets don’t end up in the wrong hands. Here’s a breakdown of the key clauses every NDA should include to offer robust protection.
1. Definition of Confidential Information
This clause is the heart of the NDA. It should clearly define what constitutes confidential information. Be as specific as possible, including:
Business plans and strategies
Financial data
Customer lists
Product designs and specifications
Software codes
Trade secrets
Avoid vague terms. A well-defined scope leaves no room for ambiguity, ensuring both parties understand exactly what is protected.
2. Obligations of the Receiving Party
Specify what the receiving party can and cannot do with the confidential information. This typically includes:
Non-disclosure: The receiving party must keep the information confidential and not disclose it to third parties without permission.
Non-use: The receiving party is restricted from using the information for any purpose other than the one intended under the agreement.
Standard of Care: Require the receiving party to exercise the same level of care to protect your information as they would their own.
These obligations are the backbone of the NDA, reinforcing the seriousness of maintaining confidentiality.
3. Exclusions from Confidentiality
Not all information can or should be deemed confidential. This clause outlines what is not covered by the NDA, such as:
Information that is publicly available or becomes publicly known through no fault of the receiving party.
Information the receiving party already knows before the disclosure.
Information independently developed by the receiving party without using the disclosing party’s confidential information.
Information required to be disclosed by law or court order (though typically, the receiving party must provide notice before such disclosure).
These exclusions prevent the NDA from becoming overly restrictive and ensure fairness.
4. Duration of the Non-Disclosure Agreement
How long does the obligation to maintain confidentiality last? Typically, NDAs remain in effect for a specified period—commonly two to five years—or until the confidential information no longer qualifies as a trade secret. Define the duration clearly:
Term of the NDA: How long the agreement itself is valid (e.g., during the period of negotiation or collaboration).
Duration of Confidentiality Obligations: How long the receiving party must keep the information confidential after the NDA expires.
These timeframes balance protecting your interests and providing a reasonable obligation period for the receiving party.
5. Consequences of Breach
To deter breaches, specify the consequences of violating the NDA. These may include:
Injunctive Relief: The right to obtain a court order preventing further disclosure or misuse of the confidential information.
Monetary Damages: Compensation for any financial losses incurred due to the breach.
Legal Costs: The right to recover legal fees and costs if you have to take legal action to enforce the NDA.
A clear articulation of consequences underscores the seriousness of the NDA and provides legal remedies in case of a breach.
6. Governing Law and Jurisdiction
Include a clause specifying which country’s laws govern the NDA and where any disputes will be resolved. For businesses operating in Malaysia, it’s prudent to specify Malaysian law and jurisdiction. This helps avoid the complexities of dealing with foreign legal systems and ensures familiarity with local laws.
7. Return or Destruction of Information
When the business relationship ends, or the NDA expires, require the receiving party to return or destroy any copies of the confidential information. This clause helps ensure that no information remains in the hands of the receiving party beyond what is necessary.
8. No Obligation to Enter Into Further Agreements
An NDA is often signed before negotiations or potential partnerships. Make it clear that signing the NDA does not obligate either party to enter into any further business agreements. This clause helps manage expectations and maintains flexibility.
9. No License or Ownership Rights
Clarify that the NDA does not grant any license or ownership rights to the confidential information. The receiving party is merely a custodian of the information and cannot claim any proprietary rights over it.
10. Signatures
Finally, the NDA must be signed by authorized representatives of both parties. Without signatures, the NDA may not be enforceable. Ensure that the signatories are authorised to bind their respective organisations to the terms of the agreement.
Conclusion: Protecting Your Business with a Strong NDA
A well-drafted NDA is a critical tool for protecting your business’s confidential information. By including these key clauses, you can ensure that your trade secrets and sensitive data remain secure.
Whether you're discussing potential partnerships, hiring new employees, or collaborating with contractors, an NDA provides a layer of legal protection that can prevent costly and damaging leaks. If you need assistance drafting a robust NDA tailored to your specific needs, don’t hesitate to reach out—we're here to help safeguard your business.
Should you have any questions related to the article above, please do not hesitate to contact our managing partner, Eugene Yeong for clarification.