Confidentiality Agreements and NDAs

Yes, confidentiality agreements (also known as non-disclosure agreements) are legal. They are enforceable contracts that legally bind one or more parties to keep certain information confidential. These agreements are commonly used to protect sensitive information, such as trade secrets, business plans, or proprietary data, from being disclosed to third parties.

To make any agreement legally binding, it must satisfy the key elements of contract formation – these are offer and acceptance, consideration, an intention to create legal relations, and certainty of terms.

Offer and acceptance can be formal or informal and may be expressed through words or conduct. Consideration is what each party gives or promises to give in return for the other party's promise. The parties must intend to create legal relations, and this intention should be clear in the agreement. Certainty of terms is another critical element - all material terms of the contract must be agreed upon for the agreement to be binding.

Additionally, although not strictly necessary, it is strongly recommended that a confidentiality agreement is created in the form of a written contract and is signed by all parties.

The duration of confidentiality obligations depends on the terms set out in the agreement itself. Typically, confidentiality agreements are either:

• fixed duration: commonly 1 to 5 years, after which the obligation to keep the information confidential expires; or
• indefinite duration: some agreements may state that confidentiality lasts indefinitely or until the information becomes public or no longer confidential.

If a confidentiality agreement is broken, several legal remedies may be available.

In high value cases, the most desirable remedy may be an injunction, which aims to stop any further unauthorised disclosure or use of the information. This remedy is most effective if the breach is discovered before it occurs as once the information has entered the public domain, an injunction may be of little or no use, as there is no legal remedy that will make it confidential again.

Another potential remedy is damages for breach of contract, or a claim for an account of profits where the recipient has made use of the information. However, this may not be an adequate remedy, especially where the confidential information has potential future value rather than a current value.

In broad terms, a confidentiality agreement should include provisions that clearly define what information is considered confidential, clear restrictions on unauthorised use or disclosure, practical measures to minimise the risk of disclosure (by the recipient or employees or other representatives of the recipient), and that the information disclosed under the agreement is used for a defined purpose only.

The following are some of the key clauses of an NDA:

• Definition of confidential information: the agreement should clearly define what information is considered confidential (this usually includes trade secrets, business plans, technical data, financial information, client lists, and other sensitive information the disclosing party wants to protect);
• Obligations of the receiving party: the agreement should impose obligations on the receiving party to keep the information confidential, limit its use, not disclose it to unauthorized parties and take reasonable steps to protect the information from unauthorised access or disclosure;
• Duration of confidentiality: the agreement should outline how long the confidentiality obligations will last;
• Consequences of breach: the agreement should outline the penalties or legal actions that may be available if the receiving party breaches the agreement, such as seeking damages, injunctive relief, or other remedies;
• Return or destruction of information: the agreement should set out what obligations the receiving party may need to comply with upon termination of the agreement – i.e. to return or destroy any confidential information received under the agreement.
• Governing law and jurisdiction: the agreement should specify the legal jurisdiction under which the agreement will be governed and where any disputes will be resolved.

The types of information which are typically covered by an NDA include:

• business and finance information: financial statements, projections, business plans, revenue, costs, profits, budgets, pricing strategies and other sensitive financial data;
• trade secrets: proprietary processes, formulas, methods, manufacturing techniques or secret recipes and research and development data.
• business strategies and plans: market research, business expansion plans, strategic initiatives, upcoming product launches or services in development, new partnerships or mergers/acquisitions in the works;
• marketing and advertising information: advertising strategies, promotional materials, campaign details and target market demographics or analysis;
• technical data: specifications, designs, or blueprints for products or technology, research findings or technical analysis related to products, services, or innovations, software codes, APIs, system architectures, or other technical documentation; and
• intellectual property: inventions, patents, trademarks, copyrights, product designs, concepts and prototypes (although NDAs usually don't grant IP rights, they protect the confidentiality of related ideas).

The types of information which are typically excluded from the definition of confidential information under an NDA are:

• public information: information which is publicly available or becomes public without any fault of the receiving party;
• prior knowledge: information that the recipient already knew before the NDA was entered into; and
• independent development: information that is independently developed by the recipient without using or relying on the confidential information shared under the NDA.