Non-Disclosure Agreement (NDA) :The value of any information is not unknown in today’s world and secret-keeping has always been a crucial aspect of running any business or governance. It is extremely important for any organization to protect its internal information and processes from unauthorized disclosures and for this reason, organizations enter into non-disclosure agreements before disclosing any information to an outsider to the organization. Executing a non-disclosure agreement is now a fairly common concept amongst businesses, in which one or both parties agree or promise to not disclose the confidential information of the other party, which, if disclosed to any third party or made public may cause substantial losses to the business of contracting parties.

While negotiating the terms of any given Non-Disclosure Agreement (“NDA”), it is important to look upon the major business and legal aspects involved in the information-sharing transaction, which we seek to address in this article. Apart from protecting the business and legal interests, NDAs also allows the contracting parties to feel comfortable sharing and exchanging sensitive and confidential information with each other.

In this article, we attempt to highlight and give you an overview of some essential NDA clauses, which are as follows:

1.    Disclosing and Receiving Parties: It is a good practice where one starts the NDA by establishing the parties to the agreement. The “Disclosing Party” is the individual or the entity sharing information, while the “Receiving Party” is the individual or the entity receiving information. In a mutual NDA, confidential information has shared both ways, which means both the parties of the agreement shares confidential information with each other, which means that both the parties serve as the disclosing and receiving parties. Below is the suggestive language for this clause-

 For Unilateral NDA:

 “The term “Disclosing Party” shall mean [XYZ Private Limited] and the term “Receiving Party” shall mean [ABC Private Limited].”

For Mutual NDA:

“The term “Disclosing Party” shall mean the party disclosing the confidential information and the term “Receiving Party” shall mean the party receiving the confidential information.”

 2.    Confidential Information: Before ascertaining the rights and obligations of the receiving party under an Non-Disclosure Agreement (NDA), it is important to define the term “Confidential Information”. Unless a party defines clearly what exactly will the confidential information mean and include, the entire NDA will become ambiguous, unclear, and open to interpretation. For example, if you (being a disclosing party) are disclosing your product/software related information to an outsourced technical team (being a receiving party) and you miss to specify that confidential information will mean the technical information and know-how related to your product/software, the entire NDA may simply be a futile exercise because nobody knows if you intended your technical information to be treated as confidential by the outsourced team. Therefore, we always recommend defining what exactly one means by confidential information and not leaving it open to interpretation. Below is the suggestive language for this clause-

 “Confidential Information shall mean all information, whether disclosed orally (in which case, it shall be put into writing within 7 (seven) days from the date of oral disclosure) or in writing, relating to Disclosing Party’s products, business, and operations including, but not limited to, financial documents and plans, customers, suppliers, strategies……” (You may keep on adding the information which you will be sharing with the receiving party in this definition.)

 3.    Exclusions from Confidential Information: Now that you have identified what exactly will be meant and interpreted as confidential information, you also have to ensure that you insert caveats to the definition and ensure that you have an “Exclusion” clause. This clause excludes the information which will not be included and is treated as confidential information. In simpler terms, an exclusion clause identifies which information will not be under the protection of the Non-Disclosure Agreement (NDA). There are some common and universally used exclusions that you will find in any NDA, such as the information already available in the public domain or the information which the disclosing party itself has authorized to be disclosed. Below is the suggestive language for this clause-

 “Nothing in this Agreement shall prevent the Receiving Party from using or disclosing information:

 1.    which is in or becomes public knowledge, other than by breach of this Agreement by the Receiving Party;

2.    which is lawfully disclosed to the Receiving Party by a third party which does not owe any duty of confidence to the Disclosing Party or to any third party in respect of such information;

3.    which is expressly permitted to be disclosed by the Disclosing Party (and only to the extent so permitted);

4.    which is independently developed by the Receiving Party without any direct or indirect use of the Confidential Information of the Disclosing Party; and/or

5.    was lawfully within the possession of the Receiving Party prior to its disclosure by the Disclosing Party.” (You should be very careful while using these caveats and should always identify which caveat will be in your best interest.)

 4.    Non-Disclosure Obligations: After recording what will and will not be considered confidential information, we move on to the obligations the receiving party has to observe and comply with while handling such confidential information. Please note that the non-disclosure requirements are not limited to a single clause but are a set of multiple clauses that outline various obligations depending on the requirements of the parties. We intend to give here only the basic obligation which any given Non-Disclosure Agreement (NDA) must have and anything over and above this should be added on a case-to-case basis. Below is the suggestive language for this clause-

 “The Receiving Party shall not disclose the Confidential Information to any third party (without the prior written consent of the Disclosing Party] and shall receive, maintain and hold the Confidential Information in strict confidence and shall use the same level of care in safeguarding it that the Receiving Party uses with [his/her/its] own confidential information/material but no less than a reasonable degree of care.”

 In addition to the above, an NDA may also contain some clauses which are primarily focused on safeguarding the business interests of the disclosing party, such as clauses related to non-compete, non-solicitation, or non-circumvention. These usually come with a specific time duration, which is typically between 2-5 years. Further, the legal enforceability and validity of these clauses are dealt with in accordance to the judicial decisions in this regard. We do not recommend these clauses to be inserted in NDAs without taking an appropriate legal opinion from a lawyer.

 5.    Time Frame or Termination: The clauses relating to the tenure and termination of the NDA are dependent on the business-use case. If you are entering into a NDA with a specific time in your mind, it is recommended to identify the term/tenure of the NDA during which the NDA will be in effect, however, in case the time period or duration is not of any essence to the transaction, the NDA may be entered into without any specific term. In case you do not specify the term/tenure in the NDA, you should at least have a termination clause in the NDA so that the NDA may be terminated and does not continue in perpetuity. Below is the suggestive language for this clause-

 “This Agreement shall be in effect for a period of [X] years from the date of execution of this Agreement.”

 “This Agreement may be terminated by either Party with a prior written notice of [30 (Thirty)] to the other Party.”

 6.    Survival: This clause is the most underrated of all but plays a significant role. Take a situation where you have a term and termination clause in the NDA and both contracting parties have the right to terminate the NDA. The term of the NDA is 2 years because you expect the receiving party to comply with its obligations for at least 2 years. Everything runs smoothly for a year and suddenly the receiving party terminates the agreement. Does this mean the receiving party does not have to observe the terms and conditions of the NDA for the remaining period of 1 year? Unfortunately, yes! (If you do not have the survival clause). This is why we recommend having a survival clause in the agreement so as to make sure that even if a party terminates the NDA at any given time, the obligations recorded in the NDA will survive and continue to bind the receiving party to the NDA for some additional time. Below is the suggestive language for this clause-

 “The obligations of the Receiving Party under this Agreement shall survive the expiration or any termination of this Agreement, for a period of [2] years from the date of such expiration or termination.”

 7.    Jurisdiction and governing law: This clause is important in any contractual relationship and is not limited to NDAs. This clause identifies the agreed applicable laws and the courts which will have the jurisdiction over any dispute that may arise out of the NDA between the contracting parties. You may also have an NDA arbitration clause if the parties desire to go for arbitration.

 “This Agreement shall be governed by and construed in accordance with the laws of [India], without giving effect to its choice of laws rules and shall be submitted to the exclusive jurisdiction of the courts of [XYZ], India.”