Articles > Startups

Enforcing Non-disclosure Agreements

September 25, 2020   Philip EvangelouRaymond Chbib

A non-disclosure agreement (‘NDA’), also known as a confidentiality agreement, is a legally binding document used to protect trade secrets and sensitive information. Confidential information is usually a form of intellectual property. Given it is legally binding, in the event that a party breaches or threatens to breach the signed NDA, how can the confidentiality be enforced? 

Is the NDA Valid?

Firstly, an enforceable NDA must be valid meaning properly drafted and signed. An NDA must not be too vague and board in the obligation it creates. If the document is not clear in outlining what information it aims to protect and the duration of the confidential agreement, then it may be unenforceable as it will be difficult to establish a breach. The NDA must include what is defined as confidential information, who cannot disclose it, and how long it’s active for. Both parties must sign prior to information being disclosed. 

Establishing A Breach 

To establish a contractual breach of an NDA, it must either be an actual or anticipatory breach.

An actual breach is where the violation has already occurred because the other party has disclosed information protected by the NDA. For example, if an investor has disclosed confidential trade secrets concerning your startup to a third party.

An anticipatory breach is where the other party shows an unwillingness to comply with the NDA threatening to leak confidential information. Although the information has not been disclosed yet, the other party has expressed a clear intention to violate the terms of the NDA. 

Outside Of Court 

It is both cost and time efficient to handle the violation of an NDA outside the courtroom. Resolving through an out-of-court settlement can be initiated by writing a found letter to the other party informing them of the alleged breach and that you plan on taking the matter seriously. 

You can demand monetary compensation if there has been an actual breach and damages have occurred as a result. Or if it is an anticipatory breach, you can ask the other party to refrain from acting on their intention to disclose. 

Enforcing NDAs Through The Courts

Alternatively, an NDA like any other contract can be enforced through the courts. This can be an expensive and timely process with risks associated. However, if the NDA is successfully proven there are some serious consequences and various remedies available.

For an NDA to be enforceable through the courts, it must not be unreasonably onerous in its terms. When enforcing an NDA, courts look to the period, reasonableness, and impact on the receiving party in making their decision. Having a reasonable time frame for your NDA is particularly important if a dispute arises because courts are reluctant to enforce confidentiality agreements that span over a long period. 

There are two primary remedies available: injunction and damages. An injunction will be more appropriate in a case concerning an anticipatory breach as it is an order for a party to refrain from doing something. 

For damages in the form of monetary compensation to be awarded, it must be shown that you or your business has suffered loss and harm due to the other party disclosing confidential information. This can often be difficult.

Breach Of Confidence 

In the absence of a valid NDA, if confidential information which you disclosed in confidence is leaked to a third party at your detriment then you may have an action through the equitable duty of confidence. 

To receive damages under this equity can be more difficult then a breach of an NDA because you must prove that: 

  • the information has a “quality of confidence”;
  • the information was communicated in circumstances where there was an obligation of confidence;
  • there was an unauthorised actual or threatened use of the confidential information; and
  • the information was used to your detriment, resulting in you suffering loss.

In Summary

Having an NDA in writing will offer better security and clearly express what obligations are expected of each party in the disclosure of information. Ensure that you properly draft your NDA so that it creates a contractual right which can be enforceable. It is ideal that you supply your NDA before you meet with the other party as it sets up an expectation that you have something of value and puts everyone on notice of your willingness to sue in order to protect your valuable property. Certainly, an NDA will add a level of protection to your intellectual property when working with outside parties. 

About Philip Evangelou

phillipPhil is a director at OpenLegal. He has over 16 years experience working in private practice and in-house counsel in Sydney and London, giving him expertise in employment law, IP, finance, leases, dispute resolution, insurance and contracts.

About Raymond Chbib

raymond chbibRaymond is a legal intern at OpenLegal, working with our legal content team. He is currently a penultimate student at the University of Technology Sydney, studying a Juris Doctor degree with an undergraduate Bachelor of Global Studies. He is particularly interested in Intellectual Property law and the increasing internationalisation of that area of business.