What is an NDA, and what do you negotiate in one?

An NDA, or non-disclosure agreement, is a contract in which one or both sides agree to keep certain information private and to use it only for a stated purpose.

It is usually signed before the real deal: a pitch, a partnership talk, a hiring conversation, or a supplier being shown how a product works. It is sometimes called a confidentiality agreement. The two names usually mean the same thing.

An NDA is different from a confidentiality clause. The clause sits inside a larger contract, such as a services agreement. An NDA is a contract on its own, made because there is no larger contract yet.

It depends on who is sharing.

• One-way (unilateral). Only one side discloses. Common when a company shows a supplier its plans, or a founder pitches to an investor.
• Mutual (bilateral). Both sides disclose and both are bound. Common for partnership talks, agency pitches and joint projects.

A mutual NDA is often the easier one to agree, because the terms bind both sides equally and neither is asking the other for more than it gives. Where only one side will realistically share anything, a one-way NDA is shorter and clearer.

The definition is the most important line in the document. Common approaches:

• Everything shared. Any information disclosed for the purpose, in any form. Broad and simple.
• Marked information. Only information labelled "confidential", with oral disclosures confirmed in writing within a set number of days. Narrower, and easier to track.
• Named categories. Product plans, pricing, client lists, source code, financials.

Example

"Confidential Information" means all information disclosed by one party to the other for the Purpose, in any form, that is marked as confidential or that a reasonable person would understand to be confidential.

In Plain English: anything labelled confidential, plus anything obviously confidential even if nobody labelled it.

The purpose matters as much as the definition. "To evaluate a possible partnership for the design of the Client's new website" is a purpose. "Business discussions" is not much of one.

Most NDAs carve out information that the receiving side:

1. already knew before it was disclosed
2. that is or becomes public, through no fault of the receiving side
3. receives from someone else who was free to share it
4. develops independently, without using the disclosed information

Most also allow disclosure where it is required by law or by a court or regulator, usually with notice to the other side first where that is allowed.

These exclusions are standard enough that their absence is worth a question. Without them, an NDA can appear to restrict information that was never secret.

If a question ever comes up about whether an exclusion applies, simple records help: dated notes of what was already known before talks started, and where public information came from. For studios that pitch to several clients in the same sector, that record is often the quickest way to show that an idea came from its own earlier work.

There are usually two separate periods:

• The disclosure period. How long the sides will be sharing information under the NDA, often 6 to 24 months.
• The confidentiality period. How long the obligation to keep it private lasts, often 2 to 5 years from disclosure. Trade secrets and source code are sometimes kept confidential for as long as they remain secret.

Reading both periods side by side avoids a common surprise: an NDA that "ends" after a year, but whose confidentiality obligations run for five.

Separately, the law sets time limits for bringing a claim. In England and Wales, an action on a simple contract cannot be brought after six years from when the cause of action accrued, and an action on a deed has twelve years (Limitation Act 1980, ss.5 and 8). NDAs are commonly signed as simple agreements rather than deeds.

An NDA binds the parties. Most also let each side share information with people who need it for the purpose, such as employees, advisers, lawyers and accountants, on the condition that those people are bound by similar confidentiality duties. The receiving side is usually responsible if they leak it.

Affiliates and group companies need a decision. Some NDAs say the disclosing side's group companies can rely on the NDA too. In England and Wales, a non-party can enforce a term if the contract says so, or if the term purports to confer a benefit on them, unless the contract shows the parties did not intend that, and contracts commonly exclude this right (Contracts (Rights of Third Parties) Act 1999, s.1). So whether an affiliate can enforce the NDA depends on the wording.

Most NDAs require the receiving side, on request or when talks end, to return or destroy the confidential information. Common details:

• Copies and notes. Whether notes and summaries made from the information count.
• Backups. Most NDAs allow copies in automatic backups to stay, as long as they are kept confidential and not accessed.
• Legal holds. A copy kept because law or a regulator requires it.
• Confirmation. A written confirmation that it has been done.

Ending talks does not usually end the confidentiality period. The duty to keep the information private normally runs on.

An NDA is useful before a deal. It is less useful in a few common situations:

• When there is already a contract. If a services agreement with a confidentiality clause is in place, a separate NDA for the same work can create two sets of rules for the same information. Most teams rely on the clause.
• When nothing confidential will be shared. A first call about availability and rates rarely needs one, and asking for an NDA too early can slow a conversation down.
• When the idea is the only asset. An NDA covers information, not the general idea of a product. Investors and some large companies decline to sign NDAs for early pitches for this reason.
• When the real issue is ownership. If the question is who owns work created together, that belongs in the main contract's intellectual property clause, not in an NDA.

A practical alternative before an NDA is signed is to share less: describe the problem and the approach without the detailed material, and hold back the sensitive parts until the NDA is agreed.

A checklist of the points that come up most:

1. Mutual or one-way. Does it match who is actually sharing?
2. The definition. Everything, or marked information only?
3. The purpose. Narrow enough to mean something.
4. Exclusions. All four standard ones, plus legally required disclosure.
5. Duration. Both the disclosure period and the confidentiality period.
6. Who can see it. Staff, advisers, contractors, affiliates.
7. No licence. Many NDAs say sharing information does not grant any rights in it. See intellectual property assignment for how ownership is handled in the main contract.
8. No obligation to proceed. Signing the NDA does not commit either side to a deal.
9. Non-solicitation. Some NDAs add a promise not to hire the other side's staff. It is a separate restriction, and whether it holds varies by place. This guide does not cover that.
10. Governing law and jurisdiction. Which law reads it, and where a dispute goes. We do not recommend one.

Lex drafts a mutual NDA with each of these set, and flags the ones you have not decided.

Usually electronically, often in a few minutes.

In England and Wales, an electronic signature is admissible in evidence on any question about the authenticity or integrity of a communication or data (Electronic Communications Act 2000, s.7). In the US, the ESIGN Act says a contract may not be denied legal effect solely because it is in electronic form (15 U.S.C. 7001(a)). In New York, an electronic signature has the same validity and effect as a signature affixed by hand (New York State Technology Law, s.304(2)).

On Contracts.io, describe the conversation in a sentence ("a mutual NDA with a brand we are pitching to next week"), Lex drafts it, and you share one link. Both sides agree and sign the same version. It is free for the other side.