A Complete Guide To Mutual – Non Disclosure Agreements

There may be many occasions in your professional life where you’ve been required to share confidential information with another party. The sharing of this information might facilitate your commercial relationship with another party, including, but not limited to, employment, a partnership, or a mutually beneficial project. However, you may also be exposing yourself to financial loss by giving up proprietary information. This is where confidentiality covenants in contracts can be one of the most valuable assets you hold in your professional career. 

However, what about when you’re just exploring a commercial relationship or do not intend to have any sort of definitive agreements drafted to capture your commercial relationship with another party? This is where a Non-Disclosure Agreement (a.k.a., an “NDA”) comes in and will help you protect your proprietary information.

In fact, NDAs are some of the most crucial contracts that exist in business across the world. Without them, businesses could not trust each other. Everyone would either have access to everyone else’s confidential information, inclduding, but not limited to, customer list and sales processes, or else not be able to share this information with anyone at all, even if it was mutually beneficial to do so. 

On a high-level, there are two types of NDAs, a unilateral one, where one party is obligated to keep certain information belonging to another party confidential, and a bilateral agreement, where both parties keep each other’s information confidential. 

Currently, the vast majority of bilateral NDAs are between two companies and for the purpose of exploring a certain business transaction before entering into definitive agreements. For example, two companies that want to enter into a potential partnership will sign an NDA before they draft and sign a definitive document detailing the terms of the partnership; or in the case of mergers or acquisitions, two companies may sign an NDA to provide coverage until a term sheet is signed. 

Conversely, a unilateral NDA is used primarily when only one party or company is divulging confidential information. For example, most employees are subjected to a unilateral NDA, because (i) they will have access to their employer’s confidential information, and (ii) any information they may claim as confidential will likely be captured by their intellectual property assignment to the Company. This means that if an employee starts working for a company and discloses any of their own proprietary information (e.g., ideas, know-how, customer lists, etc.), such information may be used by the employer. 

If an employee does not want to give up proprietary rights in such information, then they should either refrain from disclosing such information or try to seek a consulting relationship and enter into a mutual confidentiality agreement so that all parties involved are limited in what they can do with any disclosed confidential information. In any case of a breach in information confidentiality, the NDA can be the primary source of information on the case such as this case between Intel and Streamscale.

The Complexities of an NDA

However, forming an NDA is not always straightforward. Several key elements have to first be identified. Firstly of course, all parties bound by the agreement must be identified. What is to be deemed confidential must then be strictly defined to the point that there are no legal loopholes. Thirdly, the scope of the confidentiality obligation for both parties in terms of areas that are covered has to be determined. The contract also has to specify if there are any exclusions from confidential treatment. Finally, the timeframe of the agreement has to be set in stone.

It is vitally important that all of your bases are covered when this agreement is being drawn up. This is especially true when it comes to cross-border transactions as there are many different pieces of information that are not protected by mutual confidentiality agreements depending on the law of the country governing the terms of the NDA. For example, information that’s already public, information that the receiving party had prior knowledge of, or information that is common knowledge cannot generally be protected by an NDA. 

Exactly what information is covered by the terms of an NDA varies a lot from territory to territory across the world. This means that it is vital to have a strong knowledge of the law, either local or international, depending on the two parties that are being bound by the contract.

Of course, the most obvious solution to this problem is to rely on legacy industries, specifically lawyers. While lawyers in general will provide an adequate service, the cost associated with hiring one can be quite intimidating. A properly drafted NDA is worth its weight in gold and can cost up to $1,500 based on the complexity of the matter and the experience of the attorney.

It is important to note however, that an NDA can be even more expensive if the contract has to be drawn up across borders, as it’s possible multiple lawyers are required as each territory may have different legal frameworks. A cross-border transaction can also be very time consuming as different lawyers will have to communicate with each other to ensure that the contract is drawn up to a proper standard.

A Blockchain Solution

This is another problem that blockchain might just be able to provide a solution for. Smart contracts have long been a feature of the crypto industry but now, blockchain is being applied to hold traditional, binding contracts. Blockchain contract apps can create templates in plain English that have been validated by lawyers. Users will then have to do no more than input a few pieces of necessary data and the contract can then be automatically generated. 

Apps on blockchain can be written to be industry standard and negotiation between the parties can be automated. AI-reviews of the contract can be administered, forgoing the time consuming process of waiting for a lawyer’s sign-off. Of course, e-signature functionality will be a key part of blockchain contracts. Crucially, these contracts will be anchored on the blockchain, giving the signers a timestamped, immutable record of the agreement, that can be accessed at any time, from anywhere, by either party involved.

One component that is unique to an NDA secured on the blockchain, is that certain relevant information and documents can be registered by embedding their cryptographic fingerprint into the contract. This means that especially sensitive information does not need to be referred to in the contract and can instead be accessible only to specifically designated people involved in the signing. 

Another complexity involved in the signing of an NDA is that for proprietary information to be protected one party must prove that no other source, which is not similarly bound by confidentiality, could have access to the same information. The ability for blockchain contracts to so easily verify the time at which the information was submitted gives them a huge advantage over legacy industries as it removes a party’s ability to claim the information came from a separate source. 

Creating an NDA can be slow and expensive but it doesn’t have to be. An NDA on the blockchain provides several advantages over a legacy NDA including speed. For drawing up contracts, either locally or globally, an NDA can provide a more efficient solution at a fraction of the price.

PAID DApp and the Mutual NDA

Mutual NDAs are just one of the many contract templates that PAID Network will be offering as part of the release of PAID DApp v2. These on-chain solutions will ensure our community is protected, allowing you to safely choose from a variety of templates to secure your business interests and #GETPAID. 

The launch of PAID DApp v2 will be another step in the creation of the decentralized world. It leverages the power of the blockchain, demonstrating the disruptive impact of this new technology. With our NDAs and other templates, PAID is showing that on-chain solutions can play a major part in challenging legacy legal services.

About PAID

PAID Network seeks to redefine the current business contract, litigation, and settlement processes by providing a simple, attorney-free, and cost-friendly DApp for users and businesses to ensure they #GetPAID wherever they are in the world.

PAID technology leverages Plasm to operate on both Ethereum and Polkadot ecosystems. PAID makes businesses exponentially more efficient by building SMART Agreements through smart contracts in order to execute DeFi transactions and business agreements seamlessly.

PAID streamlines backend legal operations with SMART Agreements, so that projects can focus on making their brand bigger and better.

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*This article was updated on August 1st, 2021