• Lex Specialis

ALL ABOUT NON-DISCLOSURE AGREEMENTS

Sarthak Potdar and Divya Shah*


A non-disclosure agreement is a legal contract which establishes a confidential relationship between its parties. The contract is legally binding on all the parties signing the agreement. The parties by signing the contract agree that a particular information, usually sensitive in nature, shall not be disclosed to anyone. The information they possess shall not be made available to any other person. The non-disclosure agreement is even referred to as a confidentiality agreement which is commonly used to share sensitive information without fear that the competitors might get their hands on it.


A non-disclosure agreement namely serves three merits:

  • It is drafted with the intention to protect and preserve confidential information.

  • It can help the inventor of a nor products or a concept preserve his patent right in case of a breach.

  • It outlines the confidential information and the fair game involved.

DRAFTING OF A NON- DISCLOSURE AGREEMENT


In India, a non-disclosure agreement should be stamped and registered under the Registration Act, 1908, to become a valid enforceable document.


Whenever drafting a non-disclosure agreement, there are certain elements which are considered essential; The name of all the parties involved, the confidential information in this case, Time period involved, Any exclusions from confidentiality and appropriate uses of the information.


A non-disclosure agreement should be drafted as short as one can, in order to make it appear as a simple agreement, so that it will not raise any red alerts when reviewed by an untutored eye. However, many businesses fall for this particular trap and tend to sign the contracts without consultation with a lawyer, which will result in these companies agreeing to provisions that would cause problems for them in the future. 


The parties to the agreement should specify the information which is to be regarded as confidential. The parties to the agreement should take into consideration the fact that the other party may try to find legal loopholes or may try to widen the definition of the confidential information for their benefit. Thus, a clear definition of what is considered confidential information is important in order to stop the parties from disclosing valuable trade secrets or any such information.


A non-disclosure agreement if not drafted skilfully may lose its essence and the purpose, the agreement shouldn’t be ambiguous and the confidential information shall be clearly defined. All the parties must understand not only what they are agreeing to but all their rights and obligation under the contract. It must be noted that any clause in the agreement should not be in conflict with any other clause stated therein, to avoid confusion of any kind. The parties for the agreement must be careful and due diligent, it is advisable to both the parties to exclude any unfair clause in the non-disclosure agreement.


The information provided in the agreement is strictly confidential which basically means that either party cannot breach the agreement through either conventional or unconventional methods. For instance, if a software designer hired in a corporate company leaves a gadget prototype at a coffee shop whether knowingly or otherwise and the same is discovered by a reporter, the said software designer would likely be in breach of the NDA he signed when he took the job. Although the designer can defend himself on the grounds that the breach happened by accident.


Other provision which can be inserted in a non-disclosure agreement; The jurisdiction in case of a breach or dispute, Employee Solicitation, Injunctions, Rights of the parties, no rights in the receiving party, Non-Compete clause, Assignment of Intellectual Property Rights, Non-Solicitation.


In Lasership, Inc. v. Watson, the court held that a non-disclosure agreement was unenforceable on the grounds that the provisions which stopped the employee from sharing information about the employer were too broad. Thus, a non-disclosure agreement if not drafted properly could lose its sole purpose. [1]


The Bombay High Court in VFS Global Services vs Suprit Roy, stated that a clause which forbids an employee from disclosing information which may be a commercial or a trade secret shall not be considered as a restraint of trade. The idea behind this clause is to stop the theft of confidential information. This clause is not to be considered as a restraint under Section 27 of the Indian Contract Act.


Conclusion


The courts have attempted to create a line between the rights of the parties to the agreement. In cases of an employer and employee non-disclosure contract, the court has given certain rights to both the parties. An employer can enforce a non-disclosure agreement in the cases where the information shared is a trade secret and that secret is not available publicly. Although, a non-disclosure agreement could be enforced only if the restraint imposed was only with respect to not using the confidential information they acquired from their employment and not with respect to carrying on a similar service.


Endnotes


[1] Lasership Inc. v. Watson, No. CL 2009-1219 (Fairfax County Circuit Court 2009)

*Sarthak Potdar and Divya Shah are students at Pravin Gandhi College of Law


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