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What is a Non-Disclosure Agreement?

By R. Kayne
Updated May 17, 2024
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A non disclosure agreement (NDA) is a legal contract between at least two parties to protect trade secrets, intellectual property, or other confidential information shared by one of those parties with the other. If the party bound to secrecy discloses the confidential information before the agreement expires, he or she can be made to stop revealing this information and can be sued for damages. Inventors, corporations, financial institutions and businesses of all kinds make use of such contracts every day.

This type of agreement is particularly common in the competitive computer industry. Employees who work in cutting edge software or hardware may be asked to sign a non disclosure agreement in order to protect the company's investment. Inventors often use one before presenting their ideas to a prospective backer or developer. Banks and investment firms might also require employees to sign such agreements to protect the personal financial information of its members, or information regarding the institution's own finances.

A typical non disclosure agreement covers the following basic points:

  • Names the parties
  • Outlines the confidential information
  • Lists conditions that would be legal exceptions to the agreement
  • Spells out the obligations of the party bound to secrecy
  • Dictates the term of confidentiality in years
  • Covers miscellaneous or "boilerplate" points

Exceptions: A non disclosure agreement can no longer bind a party to secrecy once the confidential information has been independently developed or discovered and made public by a third party. A subpoena also normally overrides an agreement, allowing a witness to disclose information for legal proceedings.

Obligations: These vary by jurisdiction, but in general, the party is not permitted to reveal any information that might encourage or allow a third party to gain access to the protected information.

Term of Confidentiality: Commonly five years in the United States, this point can be negotiated and is often two to five years. In the European Union, it usually lasts for a period of ten years.

Miscellaneous or Boilerplate: Basic points include the states or territories in which the non disclosure agreement applies and, if breached, whether arbitration or legal proceedings will be used. The party responsible for attorney's fees should also be included here.

A non disclosure agreement is often a condition of a plea bargain in which the party paying restitution prevents the plaintiff from revealing the amount of the settlement. Plaintiffs in sexual harassment cases commonly sign one when cases are settled out of court.

This article is intended as general information and is not an exhaustive description of a NDA. If entering into a non disclosure agreement, read it carefully before signing. Some agreements actually waive all rights to confidentiality. Though many examples are online, inventors and other parties looking to protect themselves should consult an attorney.

WiseGeek is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
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