Confidentiality: The Key to Safe Negotiations

September 12, 2018

A non-disclosure agreement (NDA) is a type of contract in which parties agree to treat certain information confidential. While the NDA is – strictly speaking – not merely used in the IT sector, it is incredibly popular among IT companies. It is even so popular that it is dubbed the Silicon Valley Handshake: In the high-tech sector, signing a NDA is commonly the introductory act upon first acquaintance.

At the heart of the NDA is the description of the purpose. Why are the parties exchanging information? This is crucial, because the scope of the confidentiality and the information that should remain secret hinges on the this purpose. Examples of common cases where NDAs are used are:

  • Negotiations for purchases or sales
  • Hiring a freelancer for a specific project
  • Negotiations on a licensing agremeent
  • Negotiations on a collaboration or joint venture

It is at least as important to establish what information is treated confidential. This must be defined precisely and carefully, so parties can assess afterwards whether the information they shared falls under the agreed secrecy. There are roughly three modes to define the scope for confidentiality:

  1. Broad: All information is confidential, unless the receiving party can prove the contrary on the basis of an exception clause;
  2. Limited: Information is only confidential when it is marked as such;
  3. Balanced: Information is confidential when it is marked as such, but the circumstances may also cause information to fall under the secrecy. This creates more balance between the interests of parties at the both the disclosing and receiving end.

An NDA can be unilateral or bilateral. Under a unilateral NDA, only one party disclosed confidential information: the other merely receives confidential informaiton. In such cases, most arrangements in the agreement will be benficial for the disclosing party, since that party is the owner of all confidential information exchanged. It may therefore be difficult for the receiving party to sign such an NDA. Moreover, the receiving party may want to share confidential information on second thoughts, requiring yet another NDA to sign. Parties therefore often choose to sign a bilateral NDA.

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