Non-disclosure agreement: Protecting Trade Secrets of Business
Businesses, especially in the technology and food industry, are using non-disclosure agreement (also called as confidentiality contract) to protect important trade secrets and information that give companies an advantage to its rivals.
Trade secrets include:
- List of customers
- Software
- Product design
- Formula
- Novel ideas which are not known by other companies
While non-disclosure agreements can be oral, it is better to make it a written contract since it would be easier to prove a relationship between a company and its workers who agree to such contract.
The advantage of having a written agreement is that companies can prohibit workers from disclosing trade secrets to other businesses. In case that the said employees will disclose important information to other entities, their companies may ask the court to stop them from further disclosing the trade secrets.
BASIC ENTRIES IN A NON-DISCLOSURE AGREEMENT
According to Los Angeles corporate lawyers, there are five basic elements which must be included in a non-disclosure agreement to make this comprehensive and useful during a court proceeding and process of resolving a dispute.
- A list of confidential information and its corresponding definition
Employers should clearly state and define all the confidential information which are protected under the agreement. For example, a contract may state: Confidential information includes the process of making a particular beverage, its formula, the company’s financial information and its list of customers, vendors, and distributors. - Excluded information
A non-disclosure agreement should include certain information which is not protected under the contract. For example, a technology company merged with a software firm. All the computer programs that the technology company is using and has known before the merger can freely and independently use these even if the software firm has the same programs. - The obligations of the receiving party
The receiving party (usually a worker, investor, and business partner) promises to protect the important trade secrets and swears not to reveal these to anyone or allow other people to acquire such information by improper means. - Time limit of the contract
Most companies in the US implement a 5-year non-disclosure agreement. However, some firms have a shorter time period of two to three years. The receiving party may also shorten the time limit during the bargaining process.
Example of an entry that states the time limit of a contract: The receiving party has the obligation not to disclose the stated trade secrets and information for a period of three years from the date this agreement has been executed. - Miscellaneous terms
This entry is important since it provides solutions to potential problems and disputes. Usually, miscellaneous provisions include ways to resolve disputes; the state law that will be used in case that the contract is breached; and award to the prevailing party in a dispute.