What is a nondisclosure agreement?

Portland businesses that need to protect their sensitive information should what nondisclosure agreements are and what should be included in them.

Most companies, including those in the tri-county Portland metropolitan area and southwest Washington, must work with other individuals and companies to successfully manage and grow their businesses. To be successful, these commercial relationships require businesses to share sensitive or confidential information. In order to share this confidential information, business owners and executives must feel confident that their trade secrets will not get into the wrong hands or otherwise be used to compete against them. Nondisclosure agreements ("NDAs") are a favored vehicle to protect a company from having its trade secrets stolen or misused.

How a nondisclosure agreement works

Nondisclosure agreements are also sometimes referred to as confidentiality agreements because they are intended to keep specific details confidential in order to facilitate essential business collaboration and information sharing. NDAs identify specific information, processes, intellectual property, or data that must be safeguarded for a specified time.

Parties involved in an NDA

Companies may create NDAs with multiple persons or entities. These include employees, vendors and distributors, as well as potential investors, buyers or business partners.

Information protected by an NDA

Nondisclosure agreements can protect information related to company strategy, marketing and sales efforts, financial data, product or solution roadmaps, and intellectual property like new inventions or technologies that are not patented.

While nondisclosure agreements prohibit information being shared beyond a specific set of people, it also offers the ability to ban those with whom the information is shared from using of any confidential information or trade secrets for their own benefit. One example of this would be an employee leaving the company with knowledge of the customer lists or marketing strategies and using that information to benefit a competitor.

Creating strong contracts

Once a company determines a nondisclosure agreement is required, it is important that an NDA contain sufficient detail to provide the level of protection sought. At a minimum, these contracts must clearly identify any and all parties involved in the agreement.

NDAs must also specify exactly what information must be held as confidential and the scope of that confidentiality. For example, a contract might not protect confidential information if it is learned from a third party outside the confidential relationship. There may also be exclusions or exceptions to the basic terms.

Finally, the duration for which a particular NDA is valid should always be included in the contract. For some companies, the obligation to keep information confidential should never expire.

On the other end of an NDA (i.e. the nondisclosing party), companies need to be careful about what they sign. For example, an inventor may approach a company with a "new" product idea and ask the company to sign an NDA. If the company has already begun developing a similar product, claims can arise down the road as to whether the company used the inventor's idea or developed it independently. Making sure the NDA's wording is specific and clear can help avoid future litigation.

Solid NDAs need legal review and input

Portland companies should always consult an attorney when drafting or reviewing nondisclosure agreements. The involvement of a lawyer usually protects against unintended consequences of sharing confidential information in business ventures.