How to Write a Non Disclosure Agreement (NDA)

This article was co-authored by Clinton M. Sandvick, JD, PhD. Clinton M. Sandvick worked as a civil litigator in California for over 7 years. He received his JD from the University of Wisconsin-Madison in 1998 and his PhD in American History from the University of Oregon in 2013.

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A non-disclosure agreement (NDA) is a common type of legal contract in which two parties agree to limit the use of any information they share. These agreements are also known as "confidentiality agreements," "proprietary information agreements," or "secrecy agreements." NDAs are generally used when the two parties feel it's to their mutual benefit to share certain information but want to restrict how that information is used or shared with third parties.

Recognizing the Need for a Non-Disclosure Agreement

• You should look over your business and identify information you believe qualifies as a trade secret, or that otherwise is confidential and which you wish not to disclose to anyone.
• NDAs may also be used to prevent forfeiture (or giving up without compensation) of patent rights. Losing patent rights can cost you money, but an NDA can prevent this from happening.

• For example, a cafeteria employee hired by an engineering firm would not need to sign an NDA.

• Speak only generally that you have “trade secrets” or “proprietary information” that you want to protect. Do not reveal the substance of this confidential information.
• Negotiations over an NDA will often revolve around the length of the agreement or exclusions. You do not need to reveal your confidential information to discuss these items.

Defining the Terms of the NDA

• “This Nondisclosure Agreement (the “Agreement”) is entered into by and between ______ (the “Disclosing Party”) and _____ (the “Receiving Party”) for the purpose of preventing the unauthorized disclosure of Confidential Information as defined below. The parties agree to enter into a confidential relationship with respect to the disclosure of certain proprietary and confidential information (“Confidential Information”). [2] X Research source

• Remember that the NDA does not protect information or types of information not explicitly outlined in the agreement. For example, if the NDA lists technical specifications and designs as confidential, but does not specify pricing information as protected, pricing information may not be considered confidential under the terms of contract.
• To make the agreement as clear as possible, all of the items that you want to be covered by the agreement should be mentioned. While there is a vast range of types of information that could be kept confidential, some common ones include:
  • technical information
  • financial information
  • engineering drawings
  • customer lists
  • vendor lists
  • business practices or strategies
  • prototypes
  • computer software
  • test results
  • tools, systems, and product specifications

  

  • Include standard carve-out language for exclusions: “Confidential Information shall not include any information which is or becomes a party of the public domain through no act or omission of the Receiving Party, can be shown to be already possessed by the Receiving Party as of the date of disclosure, or shall be made available to the Receiving Party on a non-confidential basis by a third party having a right to do so.” [5] X Trustworthy Source Iowa State University Extension and Outreach Iowa State University's Extension and Outreach program dedicated to educating and engaging communities Go to source
  • The NDA should also exclude independently-developed information. [6] X Research source You can include this carve-out by using a variation of this language: “Confidential Information shall not, however, include any information which is independently developed by the Receiving Party without use of or reference to the Disclosing Party’s Confidential Information, as shown by documents and other competent evidence in the Receiving Party’s possession.” [7] X Research source

  

  • For example, the following language is common: “Receiving Party shall hold and maintain the Confidential Information in strictest confidence for the sole and exclusive benefit of the Disclosing Party. Receiving Party shall carefully restrict access to the Confidential Information to employees, contractors, and third parties as is reasonably required and shall require these persons to sign nondisclosure restrictions at least as protective as those in this Agreement.” [9] X Research source
  • You typically will limit disclosure of information as well as use. Often, parties forget to include a limitation on use: “Receiving Party shall not, without prior written approval of Disclosing Party, use for Receiving Party’s own benefit or permit others to use any Confidential Information.” [10] X Research source

  

  • For example, an employee may need to provide information about a patent to a manufacturer so that the patent can be produced.
  • It is standard to acknowledge that a recipient may reveal confidential information when ordered to by a court. [11] X Research source Therefore, state: “The obligations under this agreement shall not apply to information disclosed to a court of competent jurisdiction.” [12] X Trustworthy Source Iowa State University Extension and Outreach Iowa State University's Extension and Outreach program dedicated to educating and engaging communities Go to source
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  Setting the Terms of Handling Confidential Information

  

  • If the NDA is between an employer and employee, this would not apply because the employee would not be handing over any confidential information to the employer.
  • You are not required to rely on the other party’s standard of care. In fact, some attorneys recommend using that standard only as a backstop. Instead, you should affirmatively define the standard of care itself.

  

  • To establish the standard of care, simply state: “Receiving Party should protect the Confidential Information by using the same degree of care that Receiving Party uses to protect its own Information of a like nature, but in no circumstances less than the strictest confidence, to prevent the unauthorized use, disclosure, dissemination, or publication of the information.”

  

  • Include how the recipient should dispose of confidential information. At the end of the relationship, the recipient should either return or destroy the confidential information. Be sure to specify this. [14] X Research source
  • Include the following language: ”Upon termination or expiration, all Confidential Information furnished here under shall remain the property of the Disclosing Party and shall be returned or destroyed promptly upon request together with all copies of Confidential Information made by the Receiving Party. Upon request, the Receiving Party shall furnish the Disclosing Party written notice certifying destruction.” [15] X Research source

  

  • For example, you may wish to trade confidential information only at the start of the business collaboration. State the dates specifically.

  

  • Seek a longer limitation if you believe that your confidential information will remain confidential past five years. For example, you could try to extend the duty of confidentiality indefinitely by using the following: “The nondisclosure provisions of this Agreement shall survive the termination of this Agreement and Receiving Party’s duty to hold Confidential Information in confidence shall remain in effect until the Confidential Information no longer qualifies as a trade secret.” [17] X Research source
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  Specifying How Disputes are Resolved

  

  • For example, you might include a line that identifies a specific dollar amount that must be paid by the breaching party: “If one of the parties breaches this Agreement, the non-breaching party is entitled to $5,000.”
  • Specifying damages in this way is not recommended. If they are too high, some courts may construe them as a penalty and refuse to enforce them. Also, you may set the damages too low; if the breach causes more damage than you could have imagined, you might not get sufficiently compensated.
  • Don’t forget to specify that injunctive relief might be sought. An injunction is a court order that a party stop engaging in certain conduct. Be sure to state, “Notwithstanding a suit for money damages, either party may immediately bring a proceeding seeking preliminary injunctive relief in a court having jurisdiction which shall remain in effect until a final award is made in the arbitration or lawsuit.”

  

  • To include a provision for payment of attorney’s fees, include something like this: “The winning party has the right to collect from the other party its reasonable costs and attorney’s fees incurred in enforcing this Agreement.”

  

  • ADR is usually faster, simpler, more efficient and more flexible than litigation. Also, using ADR is private, which is good for businesses that do not want their sensitive information to be revealed in court.
  • To write an ADR clause into a nondisclosure agreement, use language similar to the following: “All claims and disputes arising under or relating to this Agreement are to be settled by mediation/arbitration/negotiation which will be conducted in the state of [whatever state the parties agree on].”
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  Finalizing the NDA

  

  • Add an integration clause by stating: “This Agreement expresses the complete understanding of the parties with respect to the subject matter and supersedes all prior proposals, agreements, representations, and understandings. This agreement may not be amended except in a writing signed by both parties.” [18] X Research source

  

  • A simple choice of law provision would state: “This Agreement shall be governed by, and construed in accordance with, the laws of the State of Texas, without regard to principles of conflicts of law thereof.”

  

  Add a signature block. At the bottom of the page, leave room for the signature of all parties. The signature block should contain the names of the businesses (if applicable), a signature line for the business’s agent, a line for the agent to print her name, and then a line for the date.

  

  • “State of [insert state], County of [insert county], on the [insert date] before me, the undersigned, [insert names], personally appeared, personally known to me on the basis of satisfactory evidence to be the individual whose name is subscribed to this application and acknowledged to me that he/she executed the application and swore that the statements made by him/her in the application and all supporting materials are true, complete, and correct.”
  • Then include a line for the notary’s signature, another line for the Notary ID number, and a line for the notary’s license expiration date.
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  If you are considering contracting with a company that has employees and you will need to reveal confidential information to that company, consider requiring that company to have its own employees sign non-disclosure agreements as well.

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  While there are many templates available on the Internet, it is important to consult with an attorney when drafting and using a non-disclosure agreement. If your goal is to keep your information secret, it likely means that revealing that information will be detrimental or fatal to your business. Spending the extra money up front will help protect your business from unwanted disclosures.

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  1. ↑http://www.nolo.com/legal-encyclopedia/nondisclosure-agreements-29630.html
  2. ↑http://www.nolo.com/legal-encyclopedia/sample-confidentiality-agreement-nda-33343.html
  3. ↑http://www.nolo.com/legal-encyclopedia/nondisclosure-agreements-29630.html
  4. ↑http://www.nolo.com/legal-encyclopedia/nondisclosure-agreements-29630.html
  5. ↑https://www.extension.iastate.edu/agdm/wholefarm/html/c5-81.html
  6. ↑http://www.carrferrell.com/what-is-a-non-disclosure-agreement
  7. ↑http://www.truecircuits.com/images/pdfs/mutual_nda.pdf
  8. ↑http://smallbusiness.findlaw.com/intellectual-property/a-nondisclosure-agreement.html
  9. ↑http://www.nolo.com/legal-encyclopedia/sample-confidentiality-agreement-nda-33343.html
  1. ↑http://www.nolo.com/legal-encyclopedia/sample-confidentiality-agreement-nda-33343.html
  2. ↑http://www.axial.net/wp-content/uploads/2014/03/Axial_9-Clauses-to-Include-in-Every-NDA.pdf
  3. ↑https://www.extension.iastate.edu/agdm/wholefarm/html/c5-81.html
  4. ↑http://www.nolo.com/legal-encyclopedia/nondisclosure-agreements-29630.html
  5. ↑http://www.axial.net/wp-content/uploads/2014/03/Axial_9-Clauses-to-Include-in-Every-NDA.pdf
  6. ↑http://www.research.psu.edu/osp/documents/award-documents/StandardNDA.pdf
  7. ↑http://www.nolo.com/legal-encyclopedia/nondisclosure-agreements-29630.html
  8. ↑http://www.nolo.com/legal-encyclopedia/sample-confidentiality-agreement-nda-33343.html
  9. ↑http://www.nolo.com/legal-encyclopedia/sample-confidentiality-agreement-nda-33343.html

  About this article

  Co-authored by:

  This article was co-authored by Clinton M. Sandvick, JD, PhD. Clinton M. Sandvick worked as a civil litigator in California for over 7 years. He received his JD from the University of Wisconsin-Madison in 1998 and his PhD in American History from the University of Oregon in 2013. This article has been viewed 130,320 times.

  10 votes - 90% Co-authors: 17 Updated: July 25, 2021 Views: 130,320

  A nondisclosure agreement is a common type of contract in which 2 parties agree to limit sharing certain information. Before you write one, look over your business and identify which information should be confidential. When you write out the nondisclosure agreement, include the names of who the agreement applies to as well as the specific kinds of information that shouldn’t be shared. These might include technical information, financial information, customer lists, or test results. If there are any exclusions that are okay to share, you can include these in the document. At the end of your agreement, specify which state’s law the agreement falls under in case a lawsuit develops. Make sure to have all parties sign the agreement in the presence of a notary to make it official. To learn how to include dispute information in your nondisclosure agreement, read more from our Legal co-author!

  Did this summary help you? Yes No Thanks to all authors for creating a page that has been read 130,320 times.

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