As important it is for an entity to enter into business agreements with different persons/ entities, it is equally necessary to ensure that the valuable treasure of the company are adequately safeguarded. One of the most treasured possessions of an entity are the confidential information which helps it cast an edge over others. It is always beneficial to ensure that the information being disclosed by the parties while concluding negotiations are not abused by any party or outsider to derive personal profits.
Confidential Information is all information constituting the important business data and secrets of the entity which enable it to establish a distinguished character in the market. As per the provisions of Agreement on Trade Related Aspects of Intellectual Property Rights (hereinafter referred to as the ‘TRIPS’), such information should be based on the following points in order to be legally protectable:
- the information must not generally be known or readily accessible to persons that normally deal with that kind of information;
- it must have commercial value because it is secret;
- the owner must have taken reasonable steps to keep it secret.
Depending upon the nature of the business operated and the transactions being entered into with another entity, the parties may specify which information being disclosed by them under a transaction needs to be protected in order to prevent any loss which may incur due to unwarranted disclosure.
Non-Disclosure Agreement – A device to protect confidential information
The Non-Disclosure Agreement is an agreement whereby the parties mutually agree to preserve the confidential information received by them while dealing with one another. The parties may tend to share such information owing to the requirement of the business intercourse and not otherwise. Disclosure of such confidential information makes it susceptible to being misused which may result in loss of business opportunities.
A Non-Disclosure Agreement should comprise of the following:
- Details of the parties doing business;
- Clear identification as to what would constitute confidential information depending on the fact that its disclosure would result in irreparable harm;
- Ownership of the confidential information;
- Obligations on the party to maintain the confidentiality of the information received by them while entering and carrying on business activities with each other;
- Terms, Duration and termination to maintain the confidentiality of the information received;
- Restrictions to use and return of the confidential information;
- Remedies and dispute resolution mechanism
By virtue of Non-Disclosure agreements, the parties create a legally binding obligation to shield the confidential information of paramount importance against exploitation detrimental to the interests of the owners of such asset.
In order to be construed as valid and enforceable, the Non-Disclosure agreement should be signed by the respective parties and stamped with appropriate value.
The Non-Disclosure Agreement is beneficial in the follows ways -
- It helps the parties elaborately classify as to what information being disclosed to the other party is of the nature of being recognized as “confidential”.
- The parties mutually agree to protect the confidentiality of the information received.
- The agreement imposes obligations on the party to secure the confidentiality of the information so received.
- The recourse and relief in the event of breach can be made binding upon the parties to the agreement thereto.
The Non-Disclosure Agreements are significant aspects of relations amongst different business corporations. For the smooth conduct of business, parties may be required to disclose certain confidential information within themselves which otherwise wouldn’t have come to the knowledge of the other party. Considering the impact of the consequences of loss of such information, the Non-Disclosure agreements may be entered into between the parties creating legal sanction in the event of failure to confirm the maintenance of confidentiality of information of such importance.