The NDA, for Non-Disclosure Agreement, is a contract that many companies regularly use.
This agreement allows the company's commercial interests to be effectively protected, at a lower cost, during pre-contractual negotiations or during a commercial partnership.
To speed up and facilitate the contracting process, the company can now rely on the artificial intelligence features of a CLM when setting up an NDA.
Non-disclosure agreement: definition
NDA stands for Non-Disclosure Agreement. The NDA is a contract that imposes two obligations not to do:
- Do not use the information for competitive purposes.
- Do not disclose information publicly.
The NDA establishes the principle of confidentiality of the information exchanged, and specifies the terms of application.
What is considered a confidential matter?
The company can require its counterparty to sign an NDA on two occasions: during the talks, and at the end when the companies conclude the business partnership.
In any event, the NDA is intended to protect sensitive information on confidential matters, including:
- The company's methods and know-how.
- The technologies used by the company and how they work.
- The company's strategy.
- Some internal data.
1. The company plans to partially divest its business. Each bidder has access to the company's financial data. In order to prevent their disclosure in case the negotiations are not successful, the company asks to sign an NDA.
2. The company hires a freelancer for a one-time assignment and communicates its strategy to him. To prevent the freelancer from disclosing this strategy to his other clients, the company makes him sign an NDA.
3. The company enters into a partnership to develop an innovative technology. It enters into an NDA to protect its research work, and to ensure that it has the lead on the technology in its market.
Among the confidential matters to be protected by means of an NDA, inventions are subject to increased precautions. When a company develops a new process or a new product, the NDA is useful at two key moments:
- During the development phase, the company ensures that the invention is not disclosed: it can then patent it once the research is completed.
- When the invention is commercialized, the company may strategically choose not to patent it - to save costs and to avoid the invention falling into the public domain, for example. The NDA can then prevent competitors from commercializing the invention.
What information should an NDA contain?
The NDA is not a named contract governed by law: the parties draft it freely.
To be valid and effective, however, it must contain essential clauses:
- The nature of the obligation: the NDA specifies that it is an obligation not to do, "not to disclose" for example.
- The exhaustive list of confidential information, or the obligation for the contracting party to ask whether the information is confidential each time it plans to communicate it to a third party.
- The identity of third parties to whom confidential information may be disclosed for the purpose of collaboration in the business partnership.
- The obligation of the partner to maintain confidentiality of its personnel authorized to know the information.
- The duration of the NDA. In practice, confidentiality applies for a period of 2 to 10 years.
- Possibly a penalty clause intended to quantify in advance the amount of damages in case of non-compliance with the NDA.
👀Also read: What do litigation and disputes mean?
Why sign a NOA?
Signing an NDA makes it possible to preserve the confidentiality of sensitive and strategic information: the company secures its intangible assets.
The signatory is all the more inclined to respect the confidentiality of exchanges as the penalty is heavy and easily applicable. Explanations:
- The business partner who competes with the company can be attacked on the basis of unfair competition. In this context, the company must prove the damage in order to obtain compensation.
- The business partner who competes with the company despite the NDA is sued on the basis of the non-performance of a contractual obligation not to do so.
However, in accordance with article 1145 of the Civil Code, the partner "owes damages by the mere fact of the contravention": the injured company does not need to prove the damage, it is automatically compensated.
How a CLM like Hyperlex by DiliTrust can help you in the implementation of NDA
The advanced functionalities of a CLM, such as the DiliTrust Governance Suite, accelerate and secure the implementation of NDAs.
- As it is a collaborative tool, the sales department can work hand in hand with the legal department via a single platform that centralizes contractual data, and thus draw up a compliant and effective NDA, notably with the help of tools such as the legal clause book.
- Automated deadline tracking allows you to be alerted before the NDA expires, to renew it if necessary.
- The dematerialized signature workflow facilitates the task of the contracting party.
Hyperlex goes further and now offers a proofreading service for NDAs.
This time-consuming task is often neglected by teams who are focused on higher value-added missions. By using Hyperlex's proofreading service, the company can eliminate the risk of errors without mobilizing its legal department.
Find out how a CLM can help you with customer feedback in our webinar!
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