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NDA Meaning

NDA 101: 10 Questions to ask yourself before signing a Non-Disclosure Agreement

by stacy

A nondisclosure agreement (NDA) can place a significant amount of responsibility on your shoulders, one that could result in financial penalties and even jail time if you fail to adhere to it.

Before you put pen to paper (or digital pen to signature), you must carefully read and understand the NDA’s terms. These ten recommendations will assist you in navigating the contract-reading process by providing you with a simple sequence of questions to ask yourself while you read the document.

NDA meaning

NDAs can be referred to by a variety of various names in different nations or regions. Secrecy Agreements, Confidential Disclosure Agreements, and Confidentiality Agreements are all terms that might be used to refer to these contracts. And while there may be small regional variations, they are all the same in that they bind one or more parties to secrecy to preserve trade secrets from being disclosed.

Non-disclosure agreements (NDAs) are distinct from non-compete clauses. For example, a sales representative could be bound by an NDA as well as a non-compete condition. The representative is prohibited from disclosing what they learned while working for their previous employer, and they are also prohibited from competing with that employer for a specified amount of time (two years, for example).

Having established what an NDA is and is not the next step is to determine what form of NDA it is.

1. What kind of non-disclosure agreement (NDA) are you signing?

There is no single, consistent NDA: the circumstances of both what you must keep secret and the punishment you would incur if you violated the NDA will vary from document to document, depending on the circumstances of the violation. Therefore, it is critical that you understand exactly what kind of deal you are entering into before signing it on the dotted line.

The most often encountered NDAs

These are the NDAs that you are most likely to encounter and sign.

A standard non-disclosure agreement (NDA) is what you would sign when dealing with a contractor, an investor, or a business partner, for example. These non-disclosure agreements (NDAs) are typically written in boilerplate (read: generic) language and merely declare that the parties will not divulge any personal, financial, or trade information during the period of collaboration. Extra clauses and complex language are not typically found in this document — but it does not rule out the possibility of finding them.

The employee NDA: Many employees, particularly in the technology industry, are obliged to sign nondisclosure agreements (NDAs) to preserve the company’s trade secrets. These are also largely boilerplate, though they frequently include non-compete terms (also known as a covenant not to compete) and/or nondisparagement clauses, which should be carefully scrutinized.

Financial non-disclosure agreements (NDAs) are most frequently used when a third party is receiving financial information that is, by its very nature, confidential. When working with accountants, tax preparers, and financial advisers, it is common to come into these types of situations. They obligate the third party to maintain the confidentiality of all financial information, typically for an indefinite period. This is one of the few instances in which an unlimited period for an NDA is appropriate: sharing someone’s bank account numbers, for example, is never acceptable no matter how much time has elapsed between the two parties.

A Merger/Sale NDA: This type of NDA is most commonly utilized in the context of mergers, acquisitions, and other types of business sales. A non-disclosure agreement (NDA) is typically signed before a merger or sale, for obvious reasons: information revealed during talks and due diligence must be protected if the merger or sale fails.

NDAs that are less common

These nondisclosure agreements are more specialized, and therefore are more likely to be found mainly in specialized industries such as medical research.

HIPAA: HIPAA is a set of regulations that protects the medical information of patients and is required by law for all health care workers. If you are not a healthcare worker, or if you are not employed in the fields of medical data or medical technology, you are unlikely to come into contact with HIPAA regulations.

When guests are asked to see a facility where sensitive information may be disclosed merely by passing through the area, they are required to sign a guest or visitor confidentiality agreement.

These NDAs are exceedingly uncommon and only appear during job interviews for highly sensitive or confidential positions in which simply knowing who works for the company or organization could be considered protected information, such as the government.

When examining an NDA, the next (and perhaps most crucial) thing to ask yourself is: how much will a violation cost you if it occurs?

2. Does the NDA specify the financial consequences of a breach?

When it comes to nondisclosure agreements, the very first thing you should check for in the paperwork is how much it will cost you if you break the terms of the agreement.

Is there a certain cash number in mind? The amount of money that an NDA breach will cost the signatory will be specified in some NDAs, which may be as specific as “$2,000” or “$15,000” or another particular sum of money. Although this type of clause is referred to as “liquidated damages,” it is crucial to understand that they are not always enforceable in many jurisdictions.

When are liquidated damages considered to be legally enforceable? It is best to consult regional and/or national law, but a good rule of thumb is that a liquidated damages clause is enforceable only if the potential damage of a breach has a real, quantifiable cost, and that cost is in line with the penalty cost in the NDA, and that cost is in line with the penalty cost in the NDA. As a result, any damage projection must be backed up by solid mathematical evidence.

One further condition applies: A liquidated damages clause is valid even if the damage caused by a breach cannot be quantified, such as loss of reputation or other intangible losses.

They may appear to be at odds with one another because the primary concept is that the monetary penalty must either be imposed by practical math or penalize damage that cannot be quantifiably measured. This is done to avoid excessively high violation costs – for example if the math indicates damages of $5,000, but the NDA specifies $100,000, the NDA is unenforceable and is likely to be thrown down.

NDAs with unlimited liability should be avoided. If at all possible, avoid signing a nondisclosure agreement (NDA) that does not identify culpability. As a result of unlimited liability, you are responsible for an unknowable quantity of damage, which implies that any litigators will attempt to obtain as much money as they possibly can. instead of a realistic and calculated maximum liability, insist on an enforceable liquidated damage clause, as described above, with a realistic and calculated maximum liability

Is there a range of expenses associated with varying levels of misappropriation? A nondisclosure agreement (NDA) may describe different levels of theft as well as how the aggrieved party will react to each level. Know your levels; they will both notify you of the severity of a violation and assist you in determining acceptable, nonbreaching behavior to engage in next time.

In most cases, a threatened misappropriation implies a desire to breach without having done so — for example, taking a USB stick home with confidential information on it but not necessarily disclosing anything. Misappropriation that has been completed is exactly what it sounds like: the information contained on the USB key has been provided to another party or leaked on the internet.

When an employee using a USB key has been identified, has been enjoined in some way, and has continued to leak information or to utilize that information to, for example, construct their rival software application, the employee is charged with continuous misappropriation of information.

These tiers are frequently accompanied by a variety of penalties, which are occasionally mentioned in the NDA itself. Before you put your wet or electronic signature on a contract, look for them and make sure you understand the consequences of doing so.

3. Is it obvious under the NDA what information is to be treated as confidential?

The specification of what information is confidential or privileged is the second most significant part of any nondisclosure agreement, and it is included in the document’s language. In essence, what information is permissible to share and what information is not permissible to share at all?

Look for clear definitions of what constitutes and does not constitute confidential information. A clear definition of trade secrets or private data should be provided, such as “any information about Project X, including but not limited to technology, software processes, internal project structure, and team composition.”

Avoid using ambiguous definitions. Similarly, if the secret information to be secured by the NDA is specified as “any potentially sensitive data,” it should raise red flags. You have no idea what the rules are, or even what you may and cannot communicate (even if you do so unintentionally!). In the case where you post a photo on Instagram indicating that you had lunch with Pete and his crew, and Pete’s involvement in the project is unknown, you may have violated the law.

If your NDA has language like this, you should request that the private information be more clearly defined before you sign it.

4. What is the time range for the NDA to take effect?

The length of time that the agreement will be in effect should be clearly defined in the NDA. Basically, how long do you think you’ll be on the hook?

How long does the NDA remain in effect? Recall that the length of time you are subject to an NDA increases the likelihood that you may be involved in a breach of the confidentiality agreement. Do not place yourself in a position where you will be forced to restrict all of your professional terminologies and worry about making a mistake every time you speak for the rest of your life.

The length of time considered “appropriate” for an NDA will vary depending on the type of NDA you’re signing and the type of NDA you’re signing. As previously discussed, a financial NDA with an infinite length is most likely acceptable.

In a similar vein, some laws state that “trade secrets” have no expiration date, meaning that a company’s procedures do not automatically become fair use or part of the public domain after a specified period. It is nonetheless recommended that the NDA incorporate wording such as “until the trade secret is widely known” or “until the trade secret is no longer deemed a trade secret.”

A non-disclosure agreement (NDA) of two to three years is pretty standard for someone purchasing a business. When quitting a job, it is common practice to sign a non-disclosure agreement (NDA) that lasts for six months after the employee has left the company (depending on the nature of the business and its level of secrecy).

When is it expected that you would return secret equipment or materials if you have been granted access to them? A non-disclosure agreement (NDA) about an employee training manual should specify when you must return the booklet to the organization after signing the agreement. What is the length of your trial time if you’re beta-testing a company’s new phone or other device and you’re bound by an NDA to use the equipment in question? When will the device be returned to its owner?

Make certain that the NDA you’re going to sign provides clear answers to these queries. Finally, look for a clause that allows you to terminate the agreement. It’s always advantageous to have a “get out” clause. Idealistically, an NDA should have a termination clause that stipulates that either party may terminate the agreement by submitting a written notice to the other.

5. What exactly is a violation of the contract? What exactly are your responsibilities?

The definition of your obligations, as well as what constitutes a violation of the NDA, is the next portion of the NDA that should be carefully reviewed.

When it comes to enforcing the NDA, how difficult is it to get away with it? The NDA should explain what constitutes a breach in plain language. Taking photos in the building, exchanging data with third parties, and even reproducing work materials are all examples of actions that could be considered violations.

If the situation calls for the usage of confidential or sensitive equipment, how will that equipment be utilized? If you are given sensitive equipment or materials, the NDA should specify where and when the equipment or materials can and cannot be used. For example, utilizing a piece of sensitive equipment in a public place could result in the disclosure of a trade secret — the NDA should define what constitutes a trade secret. It should specify if you are permitted to take the device home with you or not, whether you are required to lock the device or turn it off after each usage, and whether you are permitted to connect the device to an off-site wireless network, among other things.

Is there a definition of the grounds for litigation in the NDA? According to the NDA, you should be made aware of the types of violations or conduct that will result in them taking you to court. An NDA may outline a variety of grounds for action, including trespassing, conversion (accidental theft or loss), copyright violation, patent infringement, or even plain “misappropriation of trade secrets.”

Now that the most frequently encountered difficulties have been extensively discussed, let’s take a look at the types of situation-specific clauses that you can encounter when reading an NDA agreement.

6. Do you have any other conditions in your non-disclosure agreement?

You should look for the following sections in nondisclosure agreements and study them thoroughly before sending them to legal counsel for further explanation: a.

Non-solicitation agreements are frequently invoked in the context of collaborative ventures, potential mergers, and other similar situations. To prevent one or both parties from attempting to hire personnel from the other party or even contacting them (or their clients) in any way, these restrictions are included in the contract.

Jurisdictional provisions may specify that all legal disputes must be resolved in a court in a specific state, province, or country. Ascertain whether or not this site is easily accessible to you, is convenient, and does not have any particular laws or restrictions that could cause you undue inconvenience.

Mutual non-disclosure agreements (NDAs) bind both parties to an NDA, which means that neither side can reveal the secrets of the other.

7. What actions will be taken against you if you break the NDA?

When reviewing an NDA, the next step is to consider what each party will do in the event of a breach of the terms of the agreement.

What actions can or will be taken by the injured party? If you are accused of a breach of the NDA, the NDA should describe the procedures you must take to defend yourself (and prepare yourself for how they will proceed). The following are examples of such things:

Send a cease and desist letter to the following address: This is the most usual “initial step” that a person who has been hurt will take. This is a straightforward letter alerting you that you may be in violation of your NDA and that you must cease from doing so immediately/return the material, etc. If you follow the rules, most of the time the situation is resolved.

If a settlement is reached outside of court, it may consist of a financial payment (as specified in the NDA) or even ongoing royalties collected from the violating party/company, if they have already proceeded with copying trade secrets.

Many corporations and organizations do not want an NDA to be challenged in court because it increases the likelihood of a breach of secret information occurring. Suddenly consider the possibility that every lawyer, paralegal, assistant, messenger, juror, or other court official now have access to your trade secrets – this is far from ideal.

Injunctions and temporary restraining orders: This is a court order that prohibits the use of all relevant trade secrets or data in a particular situation. It is a serious matter that might restrict you from accessing or engaging with trade secrets, data, or even a business for the rest of your life.

If you believe you have breached an NDA and have been notified, you should obtain legal advice as quickly as possible. Afterward, you should double-check and alert any liability insurance that you or your organization may be covered by. You should also double-check the original NDA and compare the allegations and facts to your duties under the agreement.

8. What local laws will affect your NDA meaning?

If you live in a different state, province, or nation than the one where the NDA is enforced, now is the time to research the laws that apply in your area (and where the NDA says legal matters will be settled).

Depending on where you live, does breaking an NDA put you at risk of criminal prosecution? Some jurisdictions and countries have the authority to arrest and prosecute those who violate a non-disclosure agreement on criminal charges (in addition to the civil case the injured party may also bring). That means that both jail time and a grueling lawsuit might be on the table if the situation continues. Determine whether or not this is the case as quickly as possible.

Investigate the laws that apply in the jurisdiction where the NDA litigation is likely to take place. If you are dealing with an American corporation, and the NDA says that legal matters will be handled in the United States, you should get familiar with the Uniform Trade Secrets Act.

If you or your firm choose to file a lawsuit in the European Union, the TRIPS Agreement will outline how the contract and any penalties will be dealt with.

You should ensure that the drafter of the NDA includes in the text of the NDA itself a statement about which regional laws apply to the NDA if you live someplace else (or the NDA is enforced somewhere else). There should be no room for ambiguity in this situation.

9. How is your signature secured?

Will a notary be there when you sign an NDA in person if you’re signing it in person? If you’re signing digitally, how secure is your signature, and how do you know it’s secure? After agreeing to sign the document, you should ask the drafting party these questions as soon as you have the opportunity.

When signing an NDA in person, is it necessary to have in-person witnesses, such as a notary public, present? That should be spelled clearly in the NDA. Of course, social distancing techniques could have an impact on the viability of in-person signing. In-person signatures are only as secure as the person who is carrying them, so make certain that your NDA is properly protected.

Signing an NDA using an electronic signature: Both technology and the rules that govern it has advanced to the point where electronic signatures can be just as valid as a traditional signature — they can even be notarized online — and are becoming increasingly common. To determine whether or not a signature is possible and legally accepted in your location, you need to look into your local signature laws.

It is astonishing how secure an electronic signature may be – yet another advantage of going digital. Furthermore, everyone involved receives digital copies of the documents as soon as they are signed, reducing the likelihood that the documents will be misplaced or lost in a file cabinet somewhere down the road.

It may even be feasible to sign using a “digital wet signature,” which is a hybrid procedure in which a standard signature is digitized using an image or a touch-screen signature in addition to a traditional signature.

10. What happens when an NDA goes wrong? (or, could an NDA have unexpected consequences?)

An NDA, like any legal contract, can be pulled apart, have weird interpretations applied to it, or be held to strict definitions, depending on the court, the attorneys, and the arbitrator or judge involved.

Not all NDA violations entail the theft of trade secrets. Earlier this year, a jury found ZeniMax Media Inc. in violation of an NDA and awarded the company 500 million dollars. ZeniMax had sued Facebook’s Oculus VR for breach of contract. Oculus VR, on the other hand, was found not guilty of stealing trade secrets by a jury. The jury, on the other hand, found that Oculus VR had violated its non-disclosure agreement with ZeniMax through copyright infringement and false designation.

The copyright violation was expected, as they created virtual reality equipment that was strikingly similar to ZeniMax’s. The claim of “false designation,” on the other hand, was more intriguing. The bottom line is that Oculus was found to have used promotional material from ZeniMax during Oculus demos, meaning that ZeniMax had approved Oculus in some way. Furthermore, Oculus VR got these promotional materials while operating under a nondisclosure agreement.

Being protected by the law does not exempt you from the consequences of violating an NDA. For example, a legally protected whistleblower who reported security problems at AT&T was still being sued a year later. After finding that the National Security Agency of the United States was obtaining AT&T customer data, Mark Klein decided to inform the company. Although he was legally right in disclosing this, he was nevertheless sued by AT&T for violating the NDA.

Confused intentions can override a non-disclosure agreement. The Court of Appeals recently rejected an NDA breach verdict that favored one party due to unclear intents and ambiguous contract language. Loftness and Twistmeyer and Associates Inc (TAI), two firms involved in the construction of specialist farming equipment, entered into an arrangement under which Loftness would build grain-bagging equipment based on the input provided by TAI. However, while the NDA attempted to characterize TAI’s sensitive information, it did so in an excessively ambiguous manner, allowing the NDA to be effectively void concerning this particular legal action.

A confidential information definition is provided in the NDA as “[s]uch information that [TAI] regards to being proprietary and/or private,” according to the terms of the agreement.

When Loftness ended up working with a third company, Brandt Industries, to manufacture farming equipment, TAI’s designs might have been used. Unfortunately for TAI, the language of the NDA was ambiguous, and their complaint was remanded to a lower court for further consideration.

Read your NDA closely, and talk to a lawyer

These questions should help you safely navigate your NDA and, hopefully, give you pause if you notice anything unusual in the contract’s wording or language. However, no internet counsel can compete with the expertise of a qualified lawyer.

When faced with tricky-looking language or terms that request unlimited liability, it may be necessary to employ the services of a contract-law counsel to protect your interests.

Also, keep in mind that the absence of an NDA does not shield you from litigation regarding trade secrets. If you are not bound by an NDA, misuse of trade secrets may nevertheless result in legal consequences.

That’s why it’s critical to be familiar with nondisclosure agreements (NDAs) and local laws before getting involved with anything even somewhat related to trade secrets.

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