Non-disclosure agreements (NDAs) are considered important in many business settings, but some people may not be familiar with their outline or what they contain. If you do not have a non-disclosure agreement, there is a risk that it will lead to major trouble later on or that your company will incur a major loss.
In this article, we will introduce an overview of non-disclosure agreements, why they are necessary, and when to conclude them. We will also explain the benefits of concluding a confidentiality agreement and the specific provisions that should be included, so please use this as a reference.
What is a non-disclosure agreement (NDA)?
A Non-Disclosure Agreement (NDA) is a legal agreement for sharing and protecting confidential information. Generally, an NDA is entered into by two or more parties, and the parties are often an “information provider” and an “information recipient.” The main purpose of a non-disclosure agreement is to prevent the leakage of confidential information and protect the confidentiality of information providers.
There are various types of transactions that are concluded, including not only general business transactions, but also the development of new products, the provision of services, and the conclusion of partnerships. These are very important agreements that serve as legal safeguards when sharing important confidential information and clarify the rights and responsibilities of information providers and information recipients.
If a non-disclosure agreement is not signed, there is a good chance that there will be disadvantages later on, such as one of the companies incurring a large loss or it becoming unclear who is responsible. Therefore, please keep in mind that whenever you enter into any kind of contract or transaction, it is necessary to conclude a non-disclosure agreement at the same time.
Why you need a non-disclosure agreement (NDA)
As I briefly touched on earlier, a non-disclosure agreement (NDA) must be concluded when contracting or doing business with a company. There are various reasons why a confidentiality agreement is necessary, but the following are the main reasons:
1. Protection of Confidential Information A non-disclosure agreement declares that specific information is confidential and serves to prevent unauthorized use or leakage of information. Confidential information is critical to maintaining a competitive edge for business, so information providers must properly protect this information.
2. Legal Protection A non-disclosure agreement is a legal document. If the contract is violated, legal action will be taken, and if the recipient of the information violates the confidentiality agreement, the recipient can claim damages.
3. Clarifying the business relationship A non-disclosure agreement also serves to clearly define the terms and duration of the agreement. This clarifies the rights and obligations of information providers and information recipients, which has the advantage of making it easier for business relationships to proceed smoothly.
4. Protection of intellectual property rights Non-disclosure agreements also serve to protect intellectual property rights such as patents, copyrights, and trademarks. Intellectual property rights act as a competitive advantage for companies, so it is necessary to conclude non-disclosure agreements in order to maintain your company’s competitiveness.
Confidentiality agreements are necessary for the reasons listed above. If any of these apply to your company’s situation, consider signing a non-disclosure agreement.
When to conclude a non-disclosure agreement (NDA)
In conclusion, the timing of entering into a non-disclosure agreement (NDA) varies. Here we will introduce specific examples of when to conclude a confidentiality agreement.
1. New Business Partnerships If you are considering a new business partnership, you may need to share sensitive information. In this case, a non-disclosure agreement is typically signed before the new partnership begins.
2. Employment Contracts When giving employees access to confidential information, an NDA is often signed along with the employment contract. Even if an employee signs a non-disclosure agreement and leaves the company, the non-disclosure agreement is generally maintained for several years afterward.
3. Investment and Fund Raising When negotiating with investors or funders (banks or financial institutions) for new business or new market development, we may conclude a non-disclosure agreement in advance.
4. External consultants and professionals in specific fields (outsourcing)
When promoting projects or initiatives in cooperation with external consultants or professionals in a specific field, it is common to conclude a non-disclosure agreement to prevent information leaks. This allows external parties to access your company’s critical information, but prevents it from being passed on to competitors or other markets.
Advantages of signing a non-disclosure agreement (NDA)
Signing a non-disclosure agreement (NDA) has many benefits, including:
Let’s look at each in turn.
There is a low possibility that confidential information will be leaked
By concluding a confidentiality agreement, information providers can significantly reduce the possibility that confidential information will be illegally leaked. The recipient of the information assumes legal responsibility from the moment the agreement is signed, so confidential information must be strictly protected to ensure that the agreement is not violated.
You can claim compensation for damages.
If a confidentiality agreement is violated, the information provider may have the right to claim damages. Information providers can take legal measures to compensate for loss or damage caused by leaked confidential information, which naturally prevents information leaks and protects information providers’ interests and confidential information. It has the advantage of being strengthened.
You can specify the scope of trade secrets.
A nondisclosure agreement can clearly define what information is considered confidential and what information is not. This allows informants to distinguish what is subject to protection. Nondisclosure agreements can also be limited to specific projects or relationships.
What are the terms of a non-disclosure agreement (NDA)?
A non-disclosure agreement (NDA) requires several clauses. Here are some common provisions included in non-disclosure agreements.
Let’s look at each in turn.
Definition of confidential information/exclusion reasons
This is a clause that clearly defines what “confidential information” refers to in a non-disclosure agreement. Confidential information is defined by the scope of information that the information provider wishes to protect. It also includes exclusion grounds, and is characterized by the fact that general information and known information are excluded from confidential information.
Duty of confidentiality
The role of a confidentiality agreement is to impose a strict obligation on the recipient to maintain confidential information. The duty of confidentiality is also characterized by the inclusion of all necessary measures to maintain the confidentiality of information.
Return/destruction of confidential information
Confidentiality agreements may also include provisions requiring the return or destruction of confidential information upon termination or under certain conditions. For example, you might want to retrieve information when it is no longer needed.
Compensation for damages/injunction
In the unlikely event that a non-disclosure agreement is violated, the information provider will claim damages from the information recipient. In some cases, legal action (injunction) may also be taken.
Validity period/survival clause
Confidentiality agreements generally have a period of validity. They may also include survival provisions regarding certain confidential information even after the non-disclosure agreement expires.
Non-Disclosure Agreement (NDA) Frequently Asked Questions
Up to this point, we have explained the outline of a non-disclosure agreement (NDA) and the clauses it contains. Here are some frequently asked questions regarding non-disclosure agreements.
Let’s look at each in turn.
Is there a problem with electronic contracts?
In conclusion, non-disclosure agreements are valid even in electronic contracts. Electronic signatures are legally recognized in many countries overseas, including Japan, and non-disclosure agreements can also be concluded using electronic means.
In addition, by appropriately setting passwords and permissions on electronic contracts, you can reduce the possibility that your information will be viewed by unrelated third parties, and you will be able to more firmly manage non-disclosure agreements.
However, there are specific legal requirements for electronic contracts, so it is important to be aware of these before entering into an electronic contract.
Do I need a revenue stamp?
Revenue stamps are not required for non-disclosure agreements. Revenue stamps are required only when creating stamp tax tax documents, and there are tax documents from No. 1 to No. 20, but which of No. 1 to No. 20 does a non-disclosure agreement have? Also not applicable. Therefore, keep in mind that there is no need to affix a revenue stamp to a non-disclosure agreement.
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summary
In this article, we have explained about non-disclosure agreements (NDAs). A non-disclosure agreement is an agreement signed between an information provider and an information receiver to protect confidential information regarding a specific business or information. In the unlikely event that a confidentiality agreement is violated, the party providing the information can claim damages from the party receiving the information or seek an injunction. To do this, at a minimum, include the following clauses in your non-disclosure agreement.
Why not read this article to deepen your understanding of non-disclosure agreements so that you can proceed with business in an amicable manner, whether you are on the information provider or information receiving side.