What is a non-disclosure agreement?

A non-disclosure agreement (NDA) is a contract to keep a secret. A non-disclosure agreement is often used when two companies want to meet to discuss a joint opportunity involving the exchange of confidential information. An NDA is especially useful when discussing an invention with a prospective licensee. This non-disclosure agreement then, would be an agreement between you and a potential licensee in which you exchanged your invention for a promise by the licensee to keep the invention secret.

A non-disclosure agreement may be unilateral, that is, one person is bound by the obligation to keep a secret, or it may be mutual, in which both parties have an obligation to keep the secrets of the other disclosing party. As in all contracts, both parties must receive a benefit; this benefit is called consideration. In the case in which you are disclosing your invention to a potential licensee for the promise of keeping your invention secret, the benefit received by the potential licensee is to learn of your invention, knowledge that he would not have otherwise had but for the exchange of the agreement. The benefit that you receive under this non-disclosure agreement is that, in exchange for disclosing your invention, the licensee or receiving party promises to keep the information secret. In this case, the consideration is the exchange of information for the promise.

Life Expectancy

Most non-disclosure agreements have a period of time of effectiveness of the information. This time period or term of the agreement is one, two, three or some finite number of years. The reason for this is that as time goes on, it becomes increasingly difficult to protect confidential information, as memories of the agreement and changes in personnel often result in accidental dissemination of the confidential information. It is also understood that confidential information typically has a relatively short period of viability. Over time, the value of trade secrets and other technical information diminishes as others independently develop or are able to reverse-engineer products to learn of the trade secrets. Trade secrets naturally disseminate as employees move from company to company, understanding, of course, that there are some trade secrets that can last many years, such as the formula for Coca-Cola©, but generally most confidential agreements expire after some period of time. The non-disclosure agreements are typically signed by both parties and may include an exhibit attached to the end of the NDA, describing in broad terms the specific confidential information that is being exchanged.