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In simple terms, a non-disclosure agreement (commonly referred to as an ‘NDA’) constitutes a written agreement between two parties or entities, wherein one party prohibits the other from sharing any confidential information exchanged between them, or such prohibition can be mutually applicable to both the parties. In essence, thus, an NDA protects confidential information from being disclosed without the written confirmation of the proprietor or deemed proprietor of such confidential information. They are also known as ‘confidentiality agreements’, ‘proprietary information agreement’ or ‘secrecy’ or ‘non -disparagement agreements’, and constitute a crucial tool that allows companies, especially startups, to pitch their ideas to the people they are negotiating with without the fear of infringement. Any person or entity that breaches the terms of a signed NDA, will be subject to the penalties as imposed by the agreement or as within the purview of the applicable laws.
NDA’s are commonly used in various forms in standard business practices and can prove to be quite effective in the following instances:
- Business Ideas:It is standard practice to sign an NDA between parties and entities that are sharing business ideas or proposals. The intent here is to protect confidential information, whether it be a business idea or confidential data from being shared with competitors or other third parties.
- Trade secrets: Not all companies turn their inventions into patents, and there are many entities that seek to protect its innovations through the medium of ‘trade secrets’ by carefully guarding them through various means, including via NDA’s.
- Employee NDA’s:A common method used to protect the company’s confidential data is to ensure that the employees who have access to such confidential information are signing an NDA. By way of extension, an employee’s NDA may also seek to protect the copyright for information created through an employee’s research or work.
Consequences for Breach
The possible consequences for breach of an NDA depend on the terms of the NDA agreement itself. For instances, the NDA may estimate pre-liquidated damages, i.e. the parties to the agreement have included within the agreement the estimated financial damages that are to be paid in case any party breaches the terms of the NDA. In other instances, it could be a case of un-liquidated damages, wherein it would be subject to the Court’s discretion to award the estimated damages in accordance with the extend of damages suffered by the non-breaching.
NDA’s are very commonly used in the UAE, especially in the form of a ‘mutual NDA’ exchanged between parties who are engaged in joint ventures, which involve sharing of proprietary information. Similarly, NDA’s are also routinely used in employment contracts, especially in the technical industries for highly skilled employees. Breach of an NDA whether intentionally or otherwise, can often lead to costly litigation and unfavorable outcomes. Therefore, entities employ proper mechanisms and cross-checks to ensure complete compliance with the terms.