As the name implies, a nondisclosure agreement aims to keep select information from disclosure to other parties. The need for this protection arises in a multitude of business scenarios from potential business sales to partnership discussions and more.
As Forbes explains, a good NDA offers more than just the ability to keep information secret. A good NDA must also avoid some potential pitfalls.
Confidentiality and fairness
In addition to keeping information confidential, a nondisclosure agreement outlines provisions that prevent another party from using confidential information to its advantage. The NDA may also outline provisions that prevent one business from using another company’s information to negatively impact that company’s operations. In essence, an NDA focuses on fair business practices.
Pitfalls of some NDAs
Some nondisclosure agreements have included provisions that cross the line of protecting a business’ sensitive information. Clauses that silence individuals or companies from providing details about illegal or unethical activities may not support a positive contract.
Ethical confidentiality agreements should maintain a balanced approach and avoid terms that provide dramatically more power to one party at the expense of the other. Vague terms and provisions may also contribute to problems with an NDA, including opening the door to challenges regarding the enforceability of the contract.
Mutual and non-mutual NDAs
A nondisclosure agreement may protect one party’s information only. This agreement would utilize a non-mutual contract. Some business matters require both parties to share sensitive information. These situations benefit from the use of a mutual nondisclosure agreement.
Clear definition of confidential information
A good NDA clearly outlines what information falls within the confines of the contract so as to limit interpretation down the road.