Are you concerned about protecting your Confidential Information? Then, this guide is for you. Confidential information is something every business entity wants to protect despite its size or area of service.
The confidential information can be of trade secrets, know-how, intellectual property rights, financial information, employee details, client details, exclusive products, etc. To protect confidential information or trade secrets, it is better to have a Non-Disclosure Agreement (NDA) in place before entering into any business deal or project with any party. To avoid confidential information from being compromised through the employees of the company, it is always better to have an NDA in place with all the employees of the company notwithstanding their position in the company.
This guide will make you understand an NDA, its importance in your business, legal validity and enforceability, important clauses and so on.
Please be advised that nothing in this document constitutes legal advice and everything here is for your information only.
Let's first start by explaining what actually meant by confidential information.
There is no specific definition for the term confidential information. To understand the concept it can be explained as all materials which are not accessible to the public and having some economic value to the business. The confidential information may be disclosed using any methods including written or oral method. The information you disclose need not be marked as confidential to be protected under the law. The information communicated through any medium of communication and made available to the receiving party can be protected as confidential information.
An NDA is a legal document in which a person or business asks the other party (another person or business) to not share or disclose the sensitive information that was shared with them pursuant to the business transaction.
To be enforceable (protectable) under the law, an NDA has to be in a written format, signed by both the disclosing and receiving party, along with two witnesses or notary attestation. It has to be stamped (on a non-judicial stamp paper of the concerned state) to be executable in a court of law.
You may be confused with different names used for NDA. An NDA may be termed as Confidential Disclosure Agreement, Secrecy Agreement, Proprietary Information Agreement (PIA), Business Secrecy Agreement and so on. All these names are used interchangeably and denote the same document: a written legal agreement under which one or both parties agree not to disclose the sensitive information disclosed to other parties.
An NDA is a legally binding agreement on the party or parties to not disclose sensitive information shared with them. Violation may lead to legal penalties.
When you use an NDA, it is important to give emphasis on the following clauses:
Defining the term NDA is very important to avoid any future disputes between the parties. When you enter into an NDA, without mentioning the duration of confidentiality properly, there may be confusion like for how long does the confidentiality exists. In some cases, the confidentiality ends with the completion of the project or termination of the employment. In other situations, the confidentiality term may continue for an extended period from the termination of contract or employment.
Thus, it is important to mention the period of confidentiality specifically to avoid any disputes between the parties and to protect such confidential information from being disclosed.
In NDA you can mention the purpose of entering into an NDA such as starting a new project in collaboration with other parties, employment agreement, Franchise Agreement and so on. NDA restricts the use of confidential information other than for the purpose mentioned under the Agreement.
Under the NDA, you can specifically mention the permitted uses and restrictions on using confidential information by the recipient. This helps in avoiding any ambiguity, misuse or loss of information.
An NDA is meant to protect commercially valuable, non-public business information that one party received from another.
Now, let's discuss such information which is not covered or protected under an NDA.
1. Information that is publicly available or accessible.
2. Information that was already known or independently developed by the receiving party.
3. The information received by the recipient through a third party who lawfully acquired such information.
At any point, if you discover that any confidential information covered under the NDA is being disclosed to the public or misused by the recipient, the primary concern will of protecting the information and the secondary concern will of claiming compensation from the party who has breached the Agreement. It is better to approach a lawyer specialized in data protection or IPR to protect confidential information and claim damages from the party who violated the NDA.
Now we can classify the situation of a breach in two different scenarios and discuss the resolution in detail, One such situation would be of breach of NDA under a contractual agreement with an external party and in another situation, the NDA is breached by an employee of the company.
In case the NDA is violated by an external party who have signed the NDA, the following remedies can be considered:
In many cases, claiming monetary compensation may not be your primary concern and rather you may prefer to keep the information out of the public domain. This may be achieved through Permanent/Temporary Injunction from the court restraining/stopping the opposite party from using/disclosing such information. After considering the importance of the matter, the court will make necessary orders to protect your information. You can consider this option if the breach has happened to highly confidential information and further disclosure/usage may continue to harm your business interests.
In some case, the confidential or proprietary information may be in the possession of the opposite party and you can ask the opposite party either directly or through a court order to return or destroy such information. Thus, in this case, you can ask the party violating the confidential information to return the confidential information in their possession by sending them a personal email or a legal notice through an advocate. The second option is to file a complaint in a competent court and get a court order to get the information back or get it destroyed.
In most cases, the disclosure or breach of confidential information may have lead to business losses. In such a scenario, you can ask the party who has breached the NDA to give compensation for the same. The court can also award damages/compensation for breach/violation of contract or disclosing confidential information without your valid permission.
In case, if the breach is committed by an employee of yours who have signed an NDA, you can choose the above-mentioned options (injunction order from the court, return or destruction of confidential information and damages/compensation). Apart from the above, you can consider the following options:
Since a breach is committed by an employee, it is better to consider settling the issues internally. You can issue a warning letter to the employee who has breached the NDA and take other necessary internal disciplinary actions.
Breach of confidential information by an employee can be a ground for dismissal of her/his employment. In this case, you don't need to pay for any notice period and the termination can be with immediate effect.
Thus, it's important for every business despite its size to protect confidential information/trade secrets. Though there is no codified law in India to protect trade secrets/confidential information, you can use Non-Disclosure Agreements and other contractual means to protect the trade secrets/confidential information from being compromised.