Non-disclosure agreement – all you need to know about NDA

Non-disclosure agreement or NDA is an agreement by which contracting parties define terms and conditions related to the non-disclosure of the important information, information representing business secret. NDA in Serbia can be containing mutual obligations in situation where both parties are disclosing confidential information or it can contain obligations only towards one party –party receiving confidential information.

However, concluding NDA is a crucial step in securing a confidentiality of business secret and important business information and processes, either if you are getting into business relationship with a contractor, partner of an employee.

There are few important points that need to be addressed in order to have an NDA in place through which you will actually protect confidential information in a right way. Only by concluding NDA using a simple template you found online will most probably not ensure that your rights are actually protected and secure.

What is Non-disclosure agreement (NDA)?

A non-disclosure agreement is a contract by which parties define their rights and obligations towards each other, regarding confidential information which are to be disclosed to the other contracting party, in order to protect and limit disclosure of such information to unauthorized third parties.

It is important for NDA to contain all relevant provisions and to reflect mutual rights and obligations in detailed manner. In that sense, it is not a very good idea to use standard template you may find on internet. If you really wish to prevent the leak of confidential information you will share with your business partners, employees and contractors, then it is of utmost importance that NDA covers all aspects related to your concrete needs.

Concluding NDA is important not only when the cooperation between parties is already established, but rather it is more efficient to conclude it before the establishing cooperation. One may think that signing NDA before concluding business cooperation agreement is unnecessary, but in practice there are a large number of situations where confidential information were shared with potential contractors, after which negotiations for establishing a business cooperation have failed. This scenario can be avoided by concluding NDA agreement in the phase of negotiations, that is, before the conclusion of the contract on business cooperation.

Use and purpose of Non-disclosure agreement

Three essential functions of an NDA are:

• Identifying protected information:

Most of the NDA’s do not identify in a proper way what is considered as a protected, confidential information. Mostly, this term encompasses rather widely scope of potential information that may be shared between the parties. However, it is important to state in a proper and concise way what information is protected, meaning what information related to concrete business relationship shall be deemed protected. The scope may vary and may include different aspects of one’s business operations, which is why it is very important to identify it in proper manner.

• Protecting sensitive information:

When you have determined what is considered as a confidential information and defined it in concise manner through NDA, then it is important to define the mechanism for protecting sensitive information. Defining proper mechanism of protection should be done considering type of confidential information which should be protected, type of business cooperation with party receiving those information, term of business cooperation or transaction and whether this information is also exposed to third parties through receiving party (for example employees of receiving party or their contractor).

• Protecting IP rights:

We are sure that (almost) every company has encountered intellectual property rights in its business operations. If you still have not paid attention to intellectual property rights it is most probably that you have neither protected them in a proper manner. Depending on your business operations it is necessary to be familiar with process of trademark protection in Serbia or with relevant processes regarding patent registration in Serbia. Having in mind the importance of intellectual property protection, it is also an essential part of NDA – regulating and protecting IP rights in a proper manner. Firstly, you need to define which IP rights you wish to protect through NDA and then to define precise and adequate method of protection.

When do I need NDA

As we stated above, it is the most efficient to conclude NDA when:

• you are in initial phase of negotiations with partners on establishing cooperation or
• starting a joint project together.

For example, after opening company in Serbia, in order to develop business operations, you will most likely enter into separate agreements with business partners, marketing agencies, contractors and employees. Considering that, at such an early stage of the business, it is particularly important to exercise caution and proceed with the conclusion of an NDA agreement.

Of course, it can be the case that in such phase you could not encompass all potential future sensitive information, yet there is always a possibility of concluding an annex to an NDA in defining a more precise scope of protected information.

5 types of NDAs

As we mentioned, concluding NDA through online form downloaded from the internet is rather not a good option. Having in mind the variety of business relations and therefore, variety of confidential information shared between the parties, it is essential to conclude NDA which will reflect all important aspects – from defining confidential and sensitive information in a proper manner to addressing precise methods of protection of such information.

Considering different areas in which NDA can be concluded, we can highlight five different types of NDA:

• Unilateral NDA: represents situation in which only one contracting party is disclosing confidential information while the other contracting party is obliged to keep such information secret;
• Mutual NDA: both contracting parties are disclosing confidential information and therefore, obligation of protecting such information refers to both of them;
• Employment NDA: it is concluded between employer and employee when establishing employment relationship, by defining in a more detailed manner what is considered under sensitive information shared during employment relationship;
• IT NDA: considers an NDA specifically designed for IT industry. Usually, it protects sensitive information related to software, hardware, cybersecurity, algorithms, data, and other sensitive information from being disclosed to unauthorized parties.
• Freelancer/Consultant NDA: used when hiring independent contractors (common in marketing and design services) or consultants to ensure they do not disclose confidential information.

The Mutual NDA

A Mutual Non-Disclosure Agreement (Mutual NDA) is a legal contract where both parties agree to keep shared confidential information private. Therefore, a mutual NDA is concluded when both contracting parties are exchanging confidential data and need equal protection. The advantages of concluding mutual NDA are:

• Equal Protection of both parties;
• Enables transparent negotiations between parties;
• Provides a clear protection processes, i.e. actions to be conducted if confidential information is misused.

The Non-Mutual Agreement

A Unilateral Non-Disclosure Agreement (Unilateral NDA) is a legal contract where only one party shares confidential information, while the receiving party agrees to keep it confidential.

This type of NDA is common in cases when one company or individual needs to disclose sensitive information without expecting to receive any in return. Such disclosures are common when establishing an employment relationship, when companies share their sensitive information with third-party vendors or in case of M&A procedures.

The Employment NDA

An Employment NDA is concluded between company as an employer and employee when an employer needs to protect sensitive information such as:

• Trade secrets;
• Client lists, contacts or other related confidential data that may be used by competitors;
• Information such as software code, research data, patents, or product designs developed within the company;
• Business plans and marketing strategies;
• Budget plans or pricing strategies.

IT NDA

An IT Non-Disclosure Agreement (IT NDA) is a specific type of NDA that is used to protect sensitive technology-related information shared between parties in the IT sector. By concluding and IT NDA disclosing party ensures that any confidential information related to technology, software, hardware, and intellectual property (IP) is not disclosed or misused by unauthorized parties.

IT NDA’s are often used when companies, developers, consultants, or contractors exchange proprietary data, software, or intellectual property.

Freelancer/Consultant NDA

This type of NDA encompasses situations where usually one party is disclosing confidential information to other party engaged as freelancer or consultant for a specific project.

Freelancer or Consultant NDA is commonly used in area of marketing services, consulting or design.

Elements of NDA

All Non-disclosure agreements should include these parts:

• Identification of Parties: properly identifying the parties to an NDA, meaning checking the authenticity and existence of legal entity signing the NDA – doing prior check ups in order to determine whether legal entity with whom you are concluding NDA is registered within business registers agency and making sure that a registered legal representative has signed the contract. If other contracting party is an individual then you should make sure to insert all relevant identification data in NDA.
• Identification whether it is unilateral or mutual NDA: depending on circumstance whether both parties are disclosing information or only one of them, it is important to emphasize whether such NDA is unilateral or mutual;
• Identifying sensitive information: defying the scope of sensitive information in accordance with type of NDA;
• Method of disclosing confidential information: NDA should contain provision on how sensitive information is to be disclosed – orally, in writing or electronically. This could be especially important in process of due diligence when large amount of sensitive data is shared. Also, defining the method of disclosing information is important in order not to get into situation where, for example, some confidential information is shared orally between the parties, and such method of sharing is not encompassed by NDA.
• Prescribing the mechanism of protection of confidential data: in most of the cases parties do not define in a proper manner the method of protection – contractual penalty in case of breach of NDA;
• Provision on territorial validity;
• Situations when confidential information can be disclosed (court cases or in case of order of state authorities);
• Dispute resolution clause is not included or it is poorly drafted: this clause is especially important when concluding NDA with foreign entity, i.e. contractor or business partner incorporated in foreign country. This clause contains two parts – first part is defining which court shall be competent to resolve dispute (here it is also important to consider the process of recognition of foreign judicial award in Serbia) and second part is prescribing the governing law for NDA. Governing law is the law of specific jurisdiction which shall be applicable in interpretation of disputed NDA provisions, which is of utmost importance to have in place a well drafted NDA;
• Duration of NDA: one of the provisions should definitely prescribe a clear timeframe regarding confidentiality obligations – during and after business relationship;
• Termination clause: determining the procedure of handling confidential information upon termination of NDA is very important step – NDA should contain obligation of receiving party to destroy and/or erase confidential data, or even situations when receiving party may keep confidential information and disclose it to third parties (mostly in cases of dispute).

Requirements and creating Non-disclosure agreement

Above we mentioned few important items that seem to be commonly disregarded by parties when concluding NDA. However, each NDA is a specific contract, drafted taking into account the specific business relationship between the contracting parties and the field of business. This means that when creating and concluding NDA, special attention should be paid in order to encompass all important items.

When drafting an NDA, complex legal issues may arise that need to be addressed before signing. Another important aspect is the timing of the NDA’s conclusion—in many cases, NDAs are not signed in a timely manner, meaning that in certain situations, they are concluded only after confidential information has already been shared. That is why it is important to take into consideration all key elements of NDA to ensure its effectiveness.

Advantages and Disadvantages of NDAs

Advantages of concluding NDA are:

• Protection of Confidential Information: in first place NDAensures that sensitive and confidential business information, trade secrets, and intellectual property are safeguarded.
• Clear legal procedures in case of disclosing confidential information: provides a legal framework to take legal action if the other party discloses protected information.
• Clear definition what is considered under protected information: defining what information is considered as a confidential, how it can be used, and who can access it.
• Trust in Business Relationships: creates a secure and fair business environment for sharing confidential information.
• Prevents Unfair Competition: prevents former employees, contractors or business partners from using confidential information for their benefit or sharing it with competitors.
• Customizable: NDAs can be tailored to specific industries and business relationships.

Frequently asked questions about Non-disclosure agreements

Conclusion on Non-disclosure agreements (NDA)

Concluding NDA should not be only a “formal thing to do” when entering into business relationship with other party. Signing an NDA is a matter of business ethics and protecting the most crucial aspects of your business—confidential information and processes that form the core of your operations. By defining contractual parties in a proper manner, prescribing all relevant provisions we mentioned above will help you manage your business relations in more secure and confident way.

If your procedure for entering contractual relationships with partners, employees, and contractors includes signing an NDA as an initial step, and if your NDA is not just a simple template but contains all key elements that properly reflect your business operations and protect confidential information crucial to your company, then you can rest assured.

If that is not the case, our advice is to promptly review your procedures for protecting confidential information and implement NDA agreements in a way that ensures the highest possible level of protection for sensitive business-related information.

Belgrade law firm NCR Lawyers offers full legal support in NDA drafting or reviewing your current template and adapt it to the specific business needs.

This article is for informational purposes only and does not constitute legal advice. If you need additional information regarding the topic in question, please feel free to contact us by email at office@ncrlawyers.com or by phone at +381677049551.