Types of Non Disclosure Agreements (NDAs)
A non-disclosure agreement (NDA) is used to safely share private information—such as unpatented inventions and trade secrets—with another party. Also known as confidentiality agreements (CAs), proprietary information agreements (PIAs), or confidential disclosure agreements (CDAs), NDAs can prevent partners, employees, advisors, and other stakeholders from disclosing, sharing, and using confidential information. These agreements also allow courts to provide relief for unauthorized confidential information disclosure.
There are three types of NDAs: unilateral, bilateral, and multilateral. Read on to learn when you should use each type. You’ll also learn how to use contract management tools like Ironclad to draft and manage them.
Unilateral NDAs, also known as one-way NDAs, only require one party to disclose its confidential information to the other party. They are the most common type of NDA, and you will come across them whenever companies need to disclose confidential information to employees, advisors, clients, partners, and other stakeholders.
Here are the most common types of unilateral NDAs:
Employers often require employees to sign these NDAs once they are hired. These agreements restrict the employees from using and disseminating confidential company information, such as:
- Trade secrets
- Business and development plans
- Pricing data
- Supply sources
- Operation plans
- Merchandising systems
- Technical information such as projections and inventions
Companies can use these NDAs to limit contractors from sharing confidential company information. Like employer-employee NDAs, company-contractor NDAs limit contractors from sharing critical business information that could reduce the competitiveness of the company.
Companies may also add detailed avoiding conflict of opportunities clauses and non-competition clauses to these NDA to limit contractors from using the knowledge they’ve gained while working at the company. Contractors are independent workers who have more flexibility and autonomy than employees. As such, companies will impose more limitations on contractors to prevent them from using and sharing information that could affect competition.
Inventors can use unilateral NDAs to protect their inventions from being patented, used, or marketed by the evaluator. These NDAs also limit evaluators from using and disclosing the inventor’s:
- Business operations, including the inventor’s financial information, vendor information, internal cost information, external business contacts, and the methods and manners of conducting business
- Customer information, including the names of the customers, their contact information, and the data they provided
- Intellectual property, including test data and test results, status and details of research and development of services and products, patents, copyrights, and trade secrets
- Service information, including all data related to the inventor’s products and services
- Accounting information, including all balance sheets, company liability information, expense reporting, and profit and loss reporting
Sellers can use NDAs to limit the buyer from sharing confidential information that they were exposed to during the sale of goods or services. They usually limit buyers from sharing the following:
- Business operations, such as the seller’s financial and internal information
- Intellectual property, such as the information relating to the seller’s proprietary rights and the status and details of research and development
- Production processes, including the processes used in the creation, manufacturing, and production of the seller’s products and services
- Computer technology, including all technical and scientific information pertaining to any process or machine used by the seller
Also known as mutual NDAs or two-way NDAs, bilateral NDAs require both parties to disclose their confidential information to each other. Both parties can limit how the other party will use and share their information.
Bilateral NDAs are commonly used in situations where parties are required to exchange a lot of private business information during negotiations. These include corporate takeovers, joint ventures, and mergers and acquisitions.
Multilateral NDAs or multiparty NDAs involve three or more parties where at least one of them will disclose information to the other parties. The party or parties will also require the other parties to protect that information from further disclosure.
These agreements eliminate the need for separate bilateral or unilateral NDAs between two parties. For example, you can enter into a single multilateral NDA with parties A, B, and C instead of entering into three separate bilateral NDAs between A and B, B and C, and A and C.
Multilateral NDAs are often found in complex, negotiation-heavy deals. A typical example of this type of NDA is a multiparty confidentiality agreement. Three or more companies can use this agreement to ensure that each party is only disclosing confidential information so that each party can determine whether it is interested in entering into further agreements.
Writing and managing NDAs effectively
Now that you know what the three types of NDAs are, let’s take a look at how you can write and manage NDAs effectively.
1. Ask yourself what type of NDA you need
Firstly, find out what kind of NDA fits your situation.
If you’re the only party disclosing confidential information to the other party, draft a unilateral NDA. If both parties are disclosing confidential information to each other, create a bilateral NDA. If there are more than three parties and at least one of them will disclose information to the other parties, get ready to draft a multilateral NDA.
2. Draft the NDA
After you’ve determined what kind of NDA you need, it’s time to draft the contract. Think about what your role is and what your relationship is like with the other parties. Be as specific as possible, and list out as many examples and categories of information as you want to protect. This will help you determine the scope of the NDA and what kind of information you’ll want to put down in writing.
For instance, if both you and the other party are inventors, you should specifically limit the other from sharing test data, test results, copyrighted material, and any other data that could make your invention less competitive if leaked.
3. Protect confidential information before signing the NDA
It’s easy to reveal confidential information during negotiations before the parties sign the NDA. This can be dangerous since the parties haven’t agreed to limit each other from sharing and using the information yet.
To avoid falling into this trap, just refer to your confidential information as “trade secrets” or “confidential data.” Don’t talk about the actual substance of the information—just focus on the length of the agreement and the limitations that you want to impose.
4. Use contract management tools to manage and execute the NDA
Once you’ve drafted the NDA, consider using premier contract management platforms like Ironclad to manage and execute your NDA. Our Data Repository lets you store and organize NDAs from anywhere. By storing all of your NDAs in one centralized hub, you can do the following within seconds:
- Locate the NDA you need
- Build reports
- Give users from other departments access to your contract data
- Pinpoint upcoming obligations and deadlines
Every deployment of Ironclad also comes with Workflow Designer, a codeless tool that works straight out of the box. Unlike many other workflow creators, our Workflow Designer doesn’t require technical expertise or long implementation times. Its simple drag-and-drop user interface allows users to draft and launch NDA generation and approval processes in minutes. All that is required is to:
- Upload an NDA template
- Tag fields that need to be filled in by parties
- Add signers and approvers.
You can power workflows further by adding conditional approvers and conditional contract clauses wherever needed.
Keep your information protected
An NDA is a legally binding agreement between at least two parties that outlines the confidential knowledge, information, or material that parties want to share with each other for business purposes but also to restrict access to. Depending on your needs, you can choose from three types of NDAs: unilateral, bilateral, and unilateral. Unilateral NDAs only require one party to disclose confidential information, while bilateral NDAs require two parties to disclose private information. Multilateral NDAs involve three parties and require at least one of them to disclose private information to the other parties.
Although unilateral NDAs are less complex than bilateral and multilateral NDAs, they are all difficult to track and manage, especially if you’re dealing with hundreds of active contracts simultaneously. That’s where Ironclad comes in. Powerful and intuitive, Ironclad has all the tools you need to draft, manage, and execute all three types of NDAs.
Interested in giving Ironclad a try? Sign up for our sandbox demo today.