NDA in simple words: how not to lose ideas, partners and profits

Nowadays, when knowledge, technologies, customer bases and business processes make up a significant part of the value of companies, the risk of losing an idea or leaking commercial information directly affects the profitability and competitiveness of a business. The World Intellectual Property Organization explains that trade secret management and a systematic approach to its protection is a key element of business strategy in today’s environment.

In this article, we will consider what an NDA is and what types of NDAs there are, when it is worth entering into an NDA, and what are the mandatory elements of the agreement. We will also analyze an important point: actions in case of suspected violations and organizational measures that complement the NDA.

What is an NDA and what are its main types?

According to the international definition, an NDA (Non-Disclosure Agreement) is a written agreement between two or more parties that sets out what information is considered confidential, what obligations are imposed on the recipient of such information, and what consequences will result in the event of its disclosure.

Types of non-disclosure agreements

There are 3 types of NDAs, which we will consider below.

1. Unilateral agreement.

This is an agreement under which only one party transfers confidential information, and the other party undertakes not to disclose or use it beyond the permitted purposes. This format is usually used in the «information owner – recipient» relationship. For example: a technology owner demonstrates a prototype to a potential manufacturer – a company passes details of a business process to a consultant – an employer gives access to a customer base to a new employee.

It is advisable to choose this type when only one of the parties transmits confidential information and the recipient does not plan to disclose its own secrets in return. Before entering into a unilateral agreement, it is important to clearly define the list of documents and data, the purpose of providing information, the terms of confidentiality and the procedure for returning or destroying materials – otherwise, too general wording makes the agreement ineffective in practice. If there is a possibility that the recipient will also disclose its own confidential information as part of the cooperation, or if the exchange of information is to be bilateral, it is better to consider concluding a bilateral agreement.

2. Reciprocal (bilateral) agreement.

This is an agreement in which both parties simultaneously disclose confidential information to each other and undertake to keep it, not to use it for other than authorized purposes and not to disclose it to third parties. This format is used in negotiation processes and joint projects. For example: two companies exchange technical documentation when preparing a joint development – potential partners share financial forecasts and business plans when negotiating licensing terms – a company and a supplier exchange information about production facilities to prepare a joint contract.

A mutual agreement is suitable if both parties plan to actively exchange information and need mutual protection: in joint development, preparation of license agreements, integration of business processes, or in preliminary negotiations where each party has something to lose. In such cases, it is important to separate categories of confidential information («Party A information», «Party B information»), agree on a single procedure for the return or destruction of materials, and provide mechanisms to prevent «cross-contamination» of information.

3. Multilateral (multi-party) agreement.

This is an agreement concluded between three or more parties and establishes general rules for the exchange and protection of confidential information between all participants at the same time. This format is used in complex projects and alliances. For example: a consortium of companies is carrying out a joint research project and needs uniform rules for sharing results – a customer and several contractors are integrating systems and need to agree on the procedure for processing technical data.

A multi-party agreement is appropriate when the number of participants makes it impractical to conclude a large number of pairwise agreements and a single, consistent protection policy is required within the project. At the same time, consider

• clear definition of roles: who is the discloser or recipient in each specific exchange episode;
• minimum technical and organizational requirements for all participants, such as encryption, labeling, access restrictions;
• a procedure for notification and joint action in the event of a breach.

When and with whom to sign an NDA: 10 specific business scenarios

Signing a non-disclosure agreement is a serious and, in many cases, necessary step for long-term mutually beneficial cooperation. So let’s take a look at 10 typical business situations in which it is advisable to ask a partner to sign an NDA:

1. Negotiations with an investor when preparing for an investment or evaluating a startup.

During the negotiations, when the startup demonstrates its business model and financial forecasts, the NDA should explicitly state that the transfer is «for the purpose of investment evaluation only.» It is also imperative to list key documents, such as a business plan, financial statements, and a demo version, and set restrictions on the further use of materials. This will allow you to maintain control over the information without blocking the investment attraction process itself.

2. Demonstrate the prototype to a potential manufacturer or technology contractor.

In this case, a unilateral agreement that clearly specifies the list of drawings, specifications and samples will be effective. The purpose of the transfer («assessment of technological capability») and the procedure for returning or destroying samples after the inspection is completed should be specified separately to avoid the risk of unauthorized copying.

3. Hiring a freelancer or external contractor (design, development, marketing).

In the contract, combine the elements of the NDA with provisions on the procedure for transferring rights to the work result and the obligation to return the source materials. This way, you will simultaneously protect trade secrets and regulate the ownership of the final product.

4. Hiring a key employee (especially at an early stage of business development).

In addition to the NDA, it is advisable to integrate provisions on restrictions on the use of information into the employment contract or a separate non-competition agreement. However, excessive breadth of wording should be avoided: describe specific categories of data and reasonable timeframes for the obligations to be in effect so that the document is practically applicable in the event of a dispute.

5. The next step in licensing or technology transfer agreements.

If both parties are simultaneously disclosing technical and commercial details, choose a mutual NDA with annexes that distinguish between «Party A information» and «Party B information» and specify a mechanism for dividing rights to the results of joint work to reduce the risk of further disputes.

6. Conduct beta testing with clients or partners.

Agree on an NDA that combines the legal regime and technical access restrictions. In other words, fix what data testers can see, what rights to feedback are transferred to the manufacturer, and what is the procedure for working with error logs. This way, feedback will not turn into a leak of commercial information.

7. Joint research and development (R&D) with partners.

Mutual or multilateral NDAs should provide not only for an information exchange regime, but also a clear procedure for determining and distributing rights to intellectual results, commercialization terms, and financial distribution. This helps to avoid conflicts after development is completed.

8. Negotiations with suppliers on the integration or adaptation of equipment.

It is useful to specify in the contract what technical information is critical and to introduce requirements for labeling documents and restrictions on working with copies. In this way, you will reduce the risk of unauthorized use of design solutions.

9. Security, audit, or consulting service providers.

Before starting work, conclude an NDA with data processing requirements (encryption, secure transmission channels) and obligations to keep the results of inspections confidential. Such steps ensure legal protection and technical reliability at the same time.

10. Engage advisors and external consultants (lawyers, development advisors).

At the initial contact, you should limit yourself to a brief «teaser» of information, and only share full business models, financial scenarios, and strategy details after signing an NDA. The agreement should clearly state the purpose of using the information and the terms of confidentiality.

Key elements of an NDA: what must be specified and why

For a non-disclosure agreement to be effective, it is important to clearly state several basic provisions. They not only define the boundaries of confidentiality, but also help to avoid legal gaps in case of disputes. Each clause has its own risks that should be considered in advance.

• Parties to the agreement: full details of each party to the agreement so that there is no doubt who is responsible for the obligations.

• Define confidential information: a clear list or criteria of what is considered to be secret data.

• Purpose of use: why the information is provided, to what extent it can be used.

• The term of the agreement: how long the parties are obliged to keep the secret – during the cooperation and after its completion.

• Exceptions: data that is not subject to an NDA (e.g., already publicly available or legally obtained from a third party).

• Liability for violations: specific consequences, such as fines, damages, or other sanctions.

• Dispute resolution procedure: which court or arbitration will consider the case in case of a conflict.

• Data return or destruction: a procedure after the end of cooperation to avoid unwanted storage of materials.

Practical checklist and short template wording

Below is a set of working wording for the key clauses of the NDA. They will help to avoid overly general or vague descriptions, which in real cases become a weak point in court or contractual disputes.

How to negotiate an NDA when presenting an idea to an investor or potential partner

When presenting a business idea to an investor or potential partner, a non-disclosure agreement becomes an important tool for protection. However, improperly negotiating or requesting an NDA at the wrong time can complicate negotiations or even scare off a potential investor. To protect yourself and not lose the chance for funding or partnership, you should follow a few rules and a logical sequence of actions.

Before signing an NDA, you should disclose only the general principles of the product or service, briefly describe the market and target audience, avoiding specific revenue figures or detailed data on customer bases. You can also share concepts or unique ideas, but without technical details and financial forecasts, so as not to expose yourself to the risk of commercial information leakage.

The presentation should be as concise and clear as possible, emphasizing the value and potential of the business, but without revealing key secrets. This approach allows you to interest an investor or potential partner without disclosing confidential details and at the same time demonstrating the commercial attractiveness of the project.

An example of a teaser letter wording:

«We have developed a platform that automates key business processes and reduces the time to complete tasks by an average of 70%. To discuss a potential investment, we can sign an NDA and provide detailed financial forecasts and technical documentation».

Example of a short agreement before disclosure of detailed information

1. The parties agree that any information provided during the negotiations is confidential.
2. The recipient undertakes not to disclose the information to third parties and to use it only to assess the possibility of cooperation.
3. The confidentiality period is set for 2-3 years.
4. The mechanism for returning or destroying the provided materials is prescribed upon completion of negotiations.

What to do if the NDA is breached: operational steps and legal options

Breach of an NDA is a situation that requires a quick and systematic response to minimize business losses and maintain control over confidential information. Actions are divided into operational measures and legal mechanisms that complement each other.

Operational steps

First of all, it is important to record the fact of the breach. To do this, you should

• document all the circumstances of the disclosure or misuse of information;
• immediately take measures to stop further dissemination (e.g., restrict access to materials, suspend communications)
• preserve all evidence of the violation – emails, screenshots, files, records of negotiations;
• send a formal written request to the infringer to cease disclosure and comply with the terms of the NDA.

These actions help preserve the evidence base and reduce the risk of further use of information by third parties.

Legal mechanisms of protection

In parallel, you can use legal instruments:

• a claim for damages;
• application of a temporary restraining order to prohibit further disclosure or use of information;
• in cases stipulated by the Criminal Code of Ukraine or the Code of Administrative Offenses, administrative or criminal liability of the offender is possible.

Organizational and technical measures alongside NDA

An NDA is an important tool for protecting commercial information, but it is not a panacea in itself. To effectively mitigate the risk of data breaches, businesses need to combine legal mechanisms with organizational and technical measures that provide real control over information flows.

These measures reflect the recommendations of the World Intellectual Property Organization on trade secret management and organization of confidential information protection in business processes.

Remember. When planning to work with partners or investors, you should take an integrated approach and prepare the appropriate documents and procedures in advance to minimize the risks of confidential information leakage.

Serhii Ivanchenko

CEO

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