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NDAs are the silent guardians of valuable business info—protecting trade secrets, sensitive data, and industry know-how.

 

A non-disclosure agreement (customarily abbreviated to NDA) is an agreement between two or more parties that protects information that the parties intend to share between them. This type of agreement essentially prohibits one, both, or all the parties from disclosing and/or using the information that is covered by the agreement. Why? Because at least one of the parties views the information as valuable and/or confidential to the extent that – should it become public – it would harm the business of the one that disclosed the information. An NDA typically covers information that can be labelled as know-how, trade secrets, or that is otherwise sensitive in nature.

The requirement to have an NDA “in place” before information will be shared has become commonplace in business. The popularity of NDAs is not surprising, considering the premium placed on trade secrets, ideas, knowledge, know-how, and innovation. Businesses are keen to protect their intangible assets since it is often a component of their competitive edge and sustainability.

For these reasons, we often find non-disclosure provisions in sale-and-purchase, employment-, supplier-, distributor-, joint venture, consultancy, partnering, and teaming agreements. This is not a closed list of applications since non-disclosure provisions can also be found in settlement agreements.

People often agree to NDAs not because they want to, but because they have to. If you don’t sign, then they won’t get the job, the deal, or access to the opportunity.

Because NDAs tend to be laden with legalese, few people ever read it and even fewer know what they are signing. This problem is compounded by new technology, evolving intangible assets, changing human behaviour and a progressively digital society.

This blog provides a high-level overview of what you might want to know about the NDA.

When would you use an NDA?

An NDA essentially forms part of the laws that protect privacy. A case can also be made that it aims to facilitate fair business practices and competition. An NDA is not new to our law and Court cases that dealt with confidentiality and non-disclosure agreements can be traced back several years.

Above I mentioned that NDAs cover confidential, sensitive, and valuable information. Confidential information comes in many forms. It can cover information in tangible form (such as hard copy documents) and information that you learned through observation and experience, which can be recalled on demand. Written or typed information on diagrams, sketches, mind maps, and infographics all record knowledge and can therefore be confidential. Components as well as an end product that is made up of combined knowledge, experience, components, and process can also qualify as confidential even when the individual components, frameworks, knowledge, and steps are public knowledge.

The key is that the information must have a quality, characteristics, or attribute that makes it confidential. You cannot declare something to be confidential when it lacks this attribute. Ordinary general information cannot be protected by simply labelling it as a trade secret because such an action cannot alter the nature of the material.

So, what information qualifies as confidential information? There is no closed list, and it depends on the circumstances, but I find the following guidelines to be useful.

The information:

• can be confidential if it is capable of application in the trade or industry where it is sought to be applied;
• must be useful;
• not be public knowledge or property;
• must be known only to a restricted number of people or a close circle; and
• be of economic value to the person seeking to protect it.

Signing the NDA is only half the battle won. The recipient of information must also be aware of the confidential nature of the information being shared. Here it helps to have “confidential” written all over the information. Confidentiality can also be created in other ways such as restricting access to the information by means of a password or one-time pin, granting access only to certain people on a need-to-know basis, or providing redacted copies of documents.

The NDA can also determine that a recipient may not keep the information or use it for own gain.

A word of caution – The risk of using a standard NDA

When you consider when and why NDAs are used as well as how quickly a counterpart expects to receive it back, it makes sense that businesses would like to standardise their NDA. Standard NDAs tend to define confidential information in long and broad lists. There is a major risk in using an “off-the-shelf NDA” or an NDA that was built for another purpose. By deploying a one-size-fits-all approach you might very well find that the NDA affords little to no protection because of its ambiguity, breadth, inappropriateness, or incompatibility with the situation.

Get the foundation of an NDA right by asking your attorney to prepare two or three versions of an NDA that will cater for the different scenarios that your business most often encounters. For instance, you may find that you regularly engage with new business partners. So ask your attorney to analyse this encounter with you step by step.

An analysis could cover –

• mapping the workflow and information flow;
• when and how the information will get exchanged;
• listing the meetings that usually happen;
• the format of information that will be exchanged;
• the shelf life of information;
• how you will deal with new data being generated during a relationship;
• when the NDA should start and end?

Armed with this information and insight, your attorney can build a fit-for-purpose NDA.

Conclusion

An NDA is a critical and essential layer in protecting intangible assets. It establishes the rights and duties of parties who share information. Without it, you lack a foundation to protect such rights. A business owner should also go further by implementing controls, policies, and processes to supplement the NDA.

Using a standardised NDA has inherent risk to it and parties would be well advised to seek legal advice.

Do get in touch if you have an NDA sitting on your desk or if you would like to review your own NDA.

The above article outlines the factors to consider when the use a Non-disclosure agreement is advisable. If you require more information or assistance, please contact Thinus Louw on thinusl@raubenheimers.co.za or via the relevant contact details below.

Written by: Thinus Louw – Associate

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E & OE).

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