Violation of a Non-Disclosure Agreement- A Legal Recourse

Q & A

INTRODUCTION

A Non-Disclosure Agreement is an agreement between two parties that is entered into in circumstances where either or both the parties will disclose confidential information to  other in the course of their business relationship. General practice is that the agreement be entered prior to any confidential information being disclosed. By entering into a non-disclosure agreement, the relevant parties acknowledge that any information disclosed in the course of their business relationship may be confidential in nature and agree  that they will not disclose that information to third parties, except in limited circumstances as set out in the Non-Disclosure Agreement, if any. This Non-Disclosure Agreement might include schematics for a new product, client information, sales and marketing plans, or a unique manufacturing process. Using a Non-Disclosure Agreement  means your secrets will stay underground, and if not, you’ll have legal recourse and might even be able to sue for damages. Non-Disclosure Agreement  is governed by the Indian contract act 1872. In India, an Non-Disclosure Agreement must be stamped  to be a validly enforceable document.

SOME OTHER NAMES OF NON-DISCLOSURE AGREEMENT

  • Confidential Agreement(CA),
  • Confidential Disclosure Agreement(CDA),
  • Secrecy Agreement(SA),
  • Proprietary Information Agreement(PIA).

TYPES OF NON-DISCLOSURE AGREEMENT

UNILATERAL NON-DISCLOSURE AGREEMENT

It involves two parties, out of which only one party discloses certain information to the other and expects that the information is prevented from any further disclosure.

BILATERAL NON-DISCLOSURE AGREEMENT

It involves two parties; both the parties disclose information to each other, and both of them intend to protect the information from disclosing to another. For example, joint venture.

MULTILATERAL NON-DISCLOSURE AGREEMENT

It involves three or more parties to the agreement, out of which one of the parties discloses the information to other parties and wishes to have that information protected from any further disclosures. These types of Non-Disclosure Agreement also eliminate the need for unilateral or bilateral Non-Disclosure Agreement.

The type of information covered by an Non-Disclosure Agreement is virtually unlimited. In fact, any knowledge exchanged between those involved can be considered confidential. Think test results,customer lists, software, passwords, system specifications and other data. While this list isn’t  exhaustive, it might help to think of other instances of protected information.

BENEFITS OF ENTERING INTO AN NON-DISCLOSURE AGREEMENT

Helps to define what is meant by confidential Information

A proper Non-Disclosure Agreement should define confidential information and the same helps to maintain secrecy. This allows you to protect things such as trade secrets and any other information that has to be passed on for the sake for the business arrangement. Make it easier for the parties to accommodate or to adapt their obligations better.

A clear arrangement  to set and enforce consequences

Rather than having a value idea of the consequences for breach trust, a Non-disclosure agreement helps you to have legitimate recourse where the contract be broken through the unlawful dissemination of confidential information. The one who breaches has to bear the damage caused and often punishments are in the form of compensation.

A  strategy to long run business relationships

An Non-Disclosure Agreement can give real peace of mind because you know your confidential information is safe and so is your business. Since parties know the confidential information being protected and what are the consequences are for breaching the agreement, any misunderstandings  that might otherwise quickly end a business relationships may be avoided.

Non-Disclosure agreement for a specific period

Various clauses of the Non-Disclosure agreement also draw the timeline upto which the parties involving  the agreement is obliged to maintain the secrecy. Howsoever it is not mandatory to always have a specific time period. Usually the time period lasts for 5 years and in some circumstances it could be beyond the effective period of the Non-Disclosure agreement itself.

IMPORTANCE  AND NEED TO HAVE A NON-DISCLOSURE AGREEMENT

  • A step to keep people from sharing trade secrets, proprietory knowledge, client information and strategic plans.
  • The need to have an Non-Disclosure Agreement is to protect information that your employees have access to.
  • Non-Disclosure Agreement keeps people from making a profit on any secret company information.
  • Non-Disclosure Agreement are more concrete than oral agreements or implied agreements that come about from company and employee conduct.
  • Non-Disclosure Agreement are very important in order to keep the competitive advantage among those businesses. For instance, if a company is developing a new product, or developing some new ideas for sale that company may need to contract out or hire someone to help. Business owners need to discuss proprietory or sensitive information most of the time with other individuals or companies. Having signed confidentiality agreement in writing can reduce the risk of intellectual property theft.

Just like KFC secret recipe which no one can use or copy, one’s product or service should be protected and kept as secret for as long as possible. As even a small details about that product or service could give someone an idea to start something similar to what you just did.

“One should never underestimate the value of Non-Disclosure Agreement  as it might not be the person you spoke to that stole your ideas, but a person that they talked to after talking to you”.

NON-DISCLOSURE AGREEMENT VIOLATION

Violating an Non-Disclosure Agreement creates a breach of contract claim, but also can create other claims including trade secret misappropriations, copyright infringement or unfair competition depending on what the confidential information was. However, an NDA is limited and does not give the diclosing party complete protection.

EXAMPLES FOR VIOLATION

A competing company offers an employee a higher salary or significant bonus in exchange for  trade secrets or dirty laundry regarding their competitor.If the employee passes along confidential information to a bigger company or reporter who breaks the information to the media

A device prototype is stolen from a desiner’s home and falls into a competitors hands.

CONTENTS OF A NON-DISCLOSURE AGREEMENT

1 DEFINITION OF CONFIDENTIAL INFORMATION

To specify the categories or types of information covered by the agreement. This specific element serves to establish the rules or subject/consideration-of the contract without actually releasing the precise information. For example, an NDA  for exclusive designer’s clothing boutique might include a statement such as this “confidential information includes customer lists and purchase history, credit and financial information,innovative processes, inventory and sales figures.

2 EXPLANATION OF PURPOSE FOR DISCLOSURE

Explains why confidential information is being told to the party signing the agreement.

3 THE PARTIES TO THE AGREEMENT

 The person(s) Who is signing the Non-Disclosure Agreement. In  a one way Non-Disclosure Agreement the person with the sensitive information is the discloser, and the person getting the information is the recipient.

4 NO DISCLOSURE

A clause that helps explain how strong the  NON-DISCLOSURE AGREEMENT is. It  might include the following:

A best effort clause

A ”need to know” basis for the information the recipient ets.

The recipient should protect the confidential information the same way they protect their own information.

5 .EXCLUSION FROM CONFIDENTIAL INFORMATION

Exclusions might comprise information that are considered common knowledge or data collected before the agreement was signed. For example, if a designer from a computer company leaves a gadget prototype at a bar where it is discovered by a technology reporter, the designer would usually up for negotiation.

6 OBLIGATIONS OF ALL INVOLVED PEOPLE OR PARTIES

This clause explains what you aren’t allowed to do with what you receive. You can’t try to get someone else to share the secrets. You can’t try to make someone discover a secret, either.

7 TIME PERIODS

How long the agreement lasts. It usually lasts for 5 years. There are some Non-Disclosure Agreements which never expire.

8 RELATIONSHIPS

The agreement doesn’t change the relationship of the parties involved.

9 SEVERABILITY

 Also provides a clause to explain what happens if the court decides part of the agreement is invalid.

10 WAIVER

If you don’t use one of your rights that the agreement lists, you haven’t voided the other rights you get from the agreement.

11 NOTICE OF IMMUNITY

Employers aren’t responsible if they tell secret information in certain circumstances. These might include because of a court order, to a Government official or to a lawyer. The situations usually involve a lawsuit, a law violation, or other legal proceedings.

12 JURISDICTION CLAUSE

It is important to specify the courts of which city has jurisdiction to deal with in case of a dispute.

SOME OTHER MISCELLANEOUS CLAUSES MIHT INCLUDE,

  • Who pays legal fees
  • How disputes are resolved
  • Which state law you use if someone breaches the contra
  • If the agreement also binds heirs and assgins.
  • That confidential material needs to be given back.
  • The discloser owns all
  • That the recipient can’t hire the discloser’s employees, usually for 12 to 24 months.
  • The recipient doesn’t get any rights to enter into deals with the discloser.

SOME NON-DISCLOSURE AGREEMENT EXAMPLES IN THE REAL WORLD WITH RECENT CASES

  • Hotmail founder saber Bhatia had his roommates, friends, and employees sign over 400 Non-Disclosure Agreement He thinks this secrecy gave him a six month jump on competition creating similar programs. As a result, he got $400 million when he sold hotmail to Microsoft.
  • In April, 2020 the Kerala Government has intimated the Kerala High Court about steps taken to ensure security of citizen centric data during the COVID-19 pandemic. The Government stated that stringent provisions have been incorporated in the Non-Ddisclosure Agreements with Sprinkler, the USbased tech firm, to ensure the same.

“THE DIRECTOR OF INCOME TAX V. M/S SASKEN COMMUNICATION TECHNOLOGIES LTD., 10TH JUNE 2020 KARNATAKA HIGH COURT”

“It has been rightly held that NonDisclosure agreement and Non compete agreement are different inasmuch as the former applies in the case of an employee who is in employment whereas, the latter applies in the case where the employment ceases to exist”.

NON-DISCLOSURE AGREEMENT UNDER VARIOUS INSTANCES OF LAW

The concept of trade secret explained in AMBIANCE INDIA PVT LTD V. SHRI NAVEEN JAIN 2005 (81) DRJ 538, where it was held that a trade secret can be protected and confidential information which the employee has acquired in the course of his employment and which should not reach others in the interest of the employer. However a routine day to day affairs of employer  which are in the knowledge of many and are commonly known to others cannot be called as trade secrets.

Even though the Indian Contract Act,1872 does not explicitly envisage a Non-Disclosure Agreement, the same could be considered as “ restrictive agreements in terms of section 27 of the act and hence void”.  This section provides that every agreement by which anyone is restrained from exercising a lawful profession, trade, or business of any kind, is to that extend void. The only exception being in the case of sale of goodwill of a business whereby a buyer may be refrained from carrying on a similar business, within the specified local limits, so long as the buyer or any person deriving title to the goodwill from him, carries on a like business therein, provided such local limits are reasonable.

NEGATIVE COVENANT ENFORCEABLE DURING THE TERM EMPLOYMENT

In the case of NIRANJAN SHANKAR GOLIKARI  1967  AIR 1098 the apex court held Negative  covenants operative during the period of the contract of employment when the employee is bound to serve his employer exclusively are generally not regarded as restraint of trade and therefore do not fall under section 27 of the INDIAN CONTRACT ACT.  Meanwhile, in WIPRO LTD V. BECKMAN COULTER INTERNATIONAL S.A. 2006(3) ARBLR 118 (Delhi) the court held that negative covenants between employer and employee contracts pertaining to the period post termination and restricting an employer’s right to seek employment and/or to do business in the same field as the employer would be a restraint of trade and therefore, a stipulation to this effect in the contract would be void.

NON—DISCLOSURE AGREEMENT UNDER TRADE LAW

The BOMBAY HIGH COURT In VFS GLOBAL SERVICES PVT LTD  ROY 2008 (2) BomCR 446.held that a clause prohibiting an employee from disclosing commercial or trade secrets is not in restraint of trade. The effect of such clause is not to restrain the employee from exercising a lawful profession, trade or business within the meaning of section 27 of the contract act.

While the Delhi high court in MR.DILJEET TITUS, ADVOCATE V. ALFRED A ADEBARE AND ORS, 2006 (32) PTC 609 (Del.) restrained the defendant from misappropriation the information including the lists of clients and other information forming the database of the firm, in BURLINTON HOME SHOPPIN LTD V. RAJNISH CHIBBER granted injunction restraining the defendants from using the compilations, database comprising the list of the clients and in ESCORT CONST. LTD V. ACTION CONST, AIR 1999 Delhi 73,restrained Escorts from manufacturing, selling or offering for sale the PICK-N-CARRY MOBILE CRANES that were a substantial imitation or reproduction of their industrial drawings.

CONCLUSION

From the above lines of discussion it is obvious that courts tried to draw a line between the framing of Non-Disclosure Agreements in a concrete way so that no information can be known to a competitor or third parties and the maximum level of demarcation as to the restraints that can be stated in the agreement. In the way it cannot be a restraint of trade. Non-disclosure agreements helps in overall achievement of a business commitment with due diligence in safeguarding the confidential information.