An NDA is a great way to protect confidential information. However, people sometimes wonder if a non-disclosure agreement is legally binding for their particular purpose.
The short answer to that in a lot of cases is, yes. Yet, there are a few areas of caution that owners of confidential information should take into consideration before they and a receiving party sign a completed NDA template.
To answer the question of whether non-disclosure agreements legally binds receivers of your confidential information or not, this article looks at what can reduce the effectiveness of your final document. It also outlines a number of the most common mistakes that could affect the strength of an NDA.
Does a Non-Disclosure Agreement Hold Up in Court?
As long as the NDA is properly written and the information it is designed to guard is correctly protected, then it should be legal and enforceable in a court. The document needs to clearly define elements such as:
- The names of the party or parties receiving the information
- The information being shared
- Correct and incorrect uses of the data
- How and why the information is being shared
However, several scenarios could lead to the agreement being legally invalid. This we will explore more below.
Mistakes that could invalidate your NDA
It is important to remember that for the document to be enforceable it must be clear on certain details. You could find that a court will throw out a case you bring against a violating party if any of the following is true:
- The wrong party is named on the document: It’s important to remember that a non-disclosure or confidentiality agreement can only be enforced against a party specifically named on the document. Therefore their name must be correct or they won’t be considered to be officially bound by the NDA. This is especially the case when using company names.
- Confidential information is defined too broadly: An NDA cannot be used to protect all information shared with third parties. It is important to clearly define what is and isn’t confidential with the people you share the information with (for example marking any such documents as confidential with a rubber stamp). Without clarifying carefully what constitutes confidential information, you may find an NDA becomes ineffective.
- A third party receives or develops the confidential information independently: In the case that you are working with a party or company that is in the same field, that has developed confidential data that is similar or the same as yours autonomously then it won’t be covered by a non-disclosure agreement.
- The confidential information is in the public domain: An NDA can never be used to protect against the divulgence of commonly known information. If your confidential information is already in the public domain then an NDA used to protect it will be unenforceable.
- Disclosures are made before the NDA: Similarly, it is very important to make sure that none of the confidential information has been disclosed to the receiving party before the signing of an NDA. If the data in question has already been shared then the receiver named in the non-disclosure agreement could dispute the legal validity of the document.
- The document applies to the wrong jurisdiction: Normally an NDA will only apply to the country (and quite often the state) that it was signed in. Therefore if a breach of confidentiality happens outside the jurisdiction that the document was prepared for it could prove hard to enforce. To avoid this, it’s best to prepare a non-disclosure agreement to cover the location that the receiving party will handle the confidential information in.
- The signee has no authority to bind the party to the NDA: If a company gets a person in their employment to sign the final NDA document they must have sufficient authority to represent the business. If the confidentiality agreement is signed by someone who has too little authority or is unauthorized to make such an agreement on behalf of the organization the NDA will be invalid.
- The confidential information isn’t properly protected by its owner: If the owner doesn’t properly protect their confidential information by ensuring that access to it is limited then it could be argued to no longer be confidential. This could mean any NDA still in effect might no longer apply.
- The confidential information is related to illegal activity: In all cases, an NDA can’t be used to protect against the divulgence of illegal information or activities.
- The language in the document is too broad: One of the most important things an NDA has to do is clearly define what is being protected and who is bound by the clauses of the agreement. If this isn’t stated clearly or is described in a way that is too open or broad, then it may make your non-disclosure agreement unenforceable.
What Happens if You Violate a Non-Disclosure Agreement
Assuming that there is evidence to show that a party has violated the NDA, then lawyers can bring litigation against the transgressor. There are a few steps the owner of the information will need to follow before pursuing legal action.
- Review the document: Like any binding legal document, it’s essential to review the terms of the agreement to see which parties are specifically named and what circumstances of a confidentiality breach it covers. If it covers the situation in question it will be possible to move onto the next stage.
- Gather evidence: Once the terms have been reviewed the next step is to explore what evidence exists to show that the bound party has breached the NDA. To do this the owner of the information has to prove the economic value of the data and where the information has been used to benefit the recipient.
- Explore the legal options: If there are grounds to pursue damages for the breach of an NDA, the owner has a few different legal avenues available to them. Depending on the type of violation, this could include:
- Copyright infringement
- Conversion (theft of property)
- Breach of fiduciary duty
- Patent infringement
- Misappropriation of trade secrets
Is Breaking an NDA Illegal?
There are a few specific laws related to breaking a standard NDA. Whilst it isn’t illegal to infringe on a non-disclosure agreement per se, you or any other signees will still be legally accountable for breaking any of the contractual terms of the document.
However, in some situations where information is highly important, as is the case for national or major trade secrets, you may end up breaking some pretty serious laws.
For example, in these instances, and depending on how you’ve obtained and disclosed the information, you could find yourself in violation of the Economic Espionage Act (EEA), Uniform Trade Secrets Act (UTSA), or the Official Secrets Act.
Protecting your confidential information with an NDA is one of the most effective ways to ensure your secrets remain secret. Of course, as with any essential legal document, it’s important to make sure that your final draft is clear and easy to understand.
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