Non-disclosure agreements (“NDAs”), also known as confidentiality agreements, are currently a hot topic in the press. However, how effective are they in the real world?
- We Have Brilliant Ideas Ltd has made a ground-breaking discovery and wishes to engage the services of Party X to put together a business plan, or manufacture/develop a product.
- Financial Incentive Ltd wishes to introduce a secret sponsor or investor to Party Y.
- Struggling Business Ltd is the subject of a potential takeover by Party Z, which it has welcomed.
In these situations, among other things, formulae, processes, financial/statistical information and business plans could pass across the desks or inboxes of various individuals. Moreover, one or more of the parties will want to ensure that this valuable information remains away from prying eyes, even individuals within their organisations. NDAs are commonly used with the intention of protecting such information to be disclosed in connection with a commercial purpose and can be used to protect most confidential information, such as in the examples above, and typically contain provisions to:
- Spell out clearly whatever the confidential information is that the parties are trying to protect.
- Restrict how a party can use the confidential information, for example to not unnecessarily copy or record it.
- Specify situations where disclosure of confidential information is allowed or obligatory, for example to certain permitted persons, or under a court order.
- Give a party the right to insist that the other party erases all its confidential information from its systems and devices on request.
- Set out what happens when discussions come to an end, and for how long a party is required to continue to ‘keep the secret’.
Sounds good on paper? But is a signed NDA enough assurance to disclose your top secret information? An example in the current press illustrates the point. The venue for Coventry City Football Club’s home games next season has been determined as a groundshare with Birmingham City Football Club’s St. Andrew’s stadium. However, prior to this announcement, the BBC reported that Coventry had secured a “groundshare venue and agreement” for 2019-20 if unable to stay in the Ricoh Arena. According to the BBC, it was “widely reported” at the time that such groundshare venue and agreement was with Birmingham City. However, Coventry were unable to confirm at the time whether or not this was the case due to restraints imposed by a confidentiality agreement.
An NDA may not prevent a breach of confidential information but it will provide a cause of action if there is a breach or the threat of one. If you have an NDA in place and there is a breach that has not yet gone public, the courts have been willing to grant injunctions in various situations, such as:
- to prevent an ex-employee from using the contact list contained on his ex-employer’s database.
- requiring individuals to destroy an applicant’s confidential information held on their devices.
Once the information is public, it is very difficult to contain and recover. In such circumstances, the only remaining remedy is to seek compensation from the courts for the loss caused. For example, if the wrongdoer uses the confidential information to generate a profit, then it can be made to account to the owner of the confidential information for the profit. If on the other hand unlawful disclosure of the information prevents the owner developing that line of business then he can seek redress for the lost business.
In terms of aiming to manage the risk of breach at an early stage, it is worth asking yourself:
- Is the recipient credible and trustworthy; is there any evidence of previous breaches of confidence?
- What would be the effect of a breach on your business? e.g., how far down the line is your discovery or invention; would a potential breach ‘give the game away’?
- Whether you have the time and resources to pursue the offending party in court, and what resources it has to defend its actions, or to compensate or repair damage done.
- Could you protect the information in another, more effective, way e.g. could you apply for a patent to safeguard your invention?
Whilst an NDA may provide some legal protection, some practical points to consider alongside this are:
- Disseminate confidential information on a strictly ‘need-to-know’ basis. Vet individuals to whom information is to be disclosed.
- Ensure that employees’ contracts have clear and appropriate confidentiality provisions and employees are informed of their obligations.
- Restrict access to areas where confidential processes are conducted, or developments are being made. Inspect the environment in which information is to be disclosed.
- Ensure that security (whether physical or technical) is appropriate and robust.
- Ask yourself whether it is appropriate to communicate electronically on devices which may be viewable in public?
Practical steps will help to ensure that you do not disclose your confidential information unwisely but an NDA will clearly establish the obligation of confidentiality and provide a route to enforcing that obligation and seeking compensation.
If you wish to discuss matters raised in this article, please contact Simon Stone on 01494 932613 or email email@example.com.