Non-Disclosure Agreements (NDAs) Explained

Overview

A non-disclosure agreement (NDA) is a contract in which one or more parties agree to keep certain shared information confidential and to limit how that information is used. Businesses use NDAs when discussing partnerships, hiring contractors or employees, showing a product to investors, or negotiating a sale. An NDA is only as strong as its drafting and as the real-world secrecy practices behind it.

Key Terms

• Confidential information: The information the agreement protects, as defined in the contract.
• Disclosing party: The party sharing the confidential information.
• Receiving party: The party that receives the information and agrees to protect it.
• Unilateral NDA: Only one side shares confidential information; only the other side is bound.
• Mutual NDA: Both sides share confidential information and both are bound.
• Trade secret: Information with independent economic value from not being generally known, subject to reasonable efforts to keep it secret (see 18 U.S.C. § 1839 and the Utah Uniform Trade Secrets Act, Utah Code § 13-24).

What NDAs Do

An NDA creates a contractual duty: the receiving party must not disclose defined confidential information to others, and must not use it for purposes outside the agreement (for example, to compete with the disclosing party). If the receiving party breaches, the disclosing party can sue for breach of contract and, in many cases, seek a court order stopping further disclosure.

NDAs commonly cover business plans, customer lists, financial data, product designs, source code, and marketing strategies. They are standard in vendor relationships, employment onboarding, and merger or investment discussions.

Unilateral vs. Mutual

In a unilateral NDA, information flows one way. A startup pitching an investor, or a company onboarding a contractor who will see internal systems, typically uses a unilateral NDA. Only the receiving party takes on confidentiality duties.

In a mutual NDA, both sides expect to share sensitive information, as in partnership negotiations or a potential acquisition where each side opens its books. Both parties are bound by the same duties. Using a mutual NDA when only one side shares information is not harmful, but it adds unnecessary obligations for the disclosing party.

Key Clauses Explained

• Definition of confidential information. Courts construe this clause closely. Broad definitions ("all information disclosed") are weaker in practice than definitions tied to information marked or identified as confidential, plus categories like technical data and business plans.
• Exclusions. Standard NDAs exclude information that is or becomes publicly available through no fault of the receiving party, information already known to the receiving party, information independently developed without use of the confidential information, information rightfully received from a third party, and information the receiving party is required by law or court order to disclose.
• Term. The agreement typically has two time periods: how long information will be shared, and how long confidentiality lasts after disclosure. One to five years is common; trade-secret-level information is sometimes protected for as long as it remains a trade secret.
• Permitted disclosures. Clauses often allow disclosure to employees, advisors, or attorneys who need to know, provided those people are bound to confidentiality.
• Remedies. Many NDAs state that breach may cause irreparable harm and that the disclosing party may seek injunctive relief (a court order stopping disclosure) in addition to money damages. Whether a court grants an injunction depends on the facts and the law of the jurisdiction.

What NDAs Cannot Do

An NDA has real limits. It cannot protect information that is already public. It does not override a court order, subpoena, or legal obligation to disclose. Under the federal Defend Trade Secrets Act (18 U.S.C. § 1833(b)), individuals have immunity for disclosing trade secrets to the government to report suspected legal violations, and NDAs are supposed to give notice of that immunity. An NDA generally cannot prevent employees from discussing wages or working conditions protected under the National Labor Relations Act. And signing an NDA does not by itself make something a trade secret; courts look at whether the owner took reasonable steps to keep the information secret.

Common Mistakes

• Using a one-sided internet template for a two-sided negotiation, or vice versa.
• Defining confidential information so broadly that a court may narrow or disregard the definition.
• Omitting the standard exclusions, which makes the agreement harder to enforce.
• Forgetting a term, leaving obligations open-ended without intending to.
• Relying on the NDA alone while sharing sensitive files without access controls, marking, or need-to-know limits.