non-disclosure agreement (NDA)
A non-disclosure agreement (NDA), also known as a confidentiality agreement, is a legally binding contract in which one party agrees to give a second party confidential information about its business or products and the second party agrees not to share this information with anyone else for a specified period of time. NDAs are used to protect sensitive information and intellectual property (IP) by outlining in detail what information must remain private and what information can be shared or released to the public.
NDAs are typically signed at the beginning of a business relationship. The information covered by a NDA can be unlimited, ranging from test results to system specifications to customer lists and sales figures. If the NDA is broken and information is leaked, it is considered a breach of contract.
Key elements of a NDA include:
- Identification of the participants
- Definition of what is considered to be confidential
- Duration of the confidentiality commitment
- Exclusions from confidential protection
NDAs are commonly used at technology companies when products are jointly developed. In such a case, the NDA is often mutual or two-way. An NDA can also be useful when a company seeks venture capital from potential backers. In this scenario, the NDA ensures that investors can access the information they need to make a financial decision, but not exploit it.
In addition to an NDA, potential investors may be asked to sign a non-compete agreement (NCA) which prevents the investor from using information acquired during negotiation to gain a competitive advantage. Such considerations are especially important when patents have been applied for but have not yet been issued.