Are NDAs worth the paper they are written on?

There is a trend for people to demand the signing of non-disclosure agreements (NDAs).  An NDA is useful:

• when someone needs access to an organisations confidential information or trade secrets, for example for the purpose of preliminary discussions and evaluations;
• where a purchase of a company is contemplated;
• where a joint venture is planned, or where an evaluation of a computer system by a prospective purchaser is being undertaken;
• for the development of new products;or
• where technical information about engineering and manufacturing processes is being imparted.

A purchaser may wish to impose non-disclosure terms on suppliers to cover its own proprietary information where prospective suppliers are investigating existing processes and procedures to determine how their products and services will meet the purchasers requirements. When companies are acquired and sold, the examination and valuation of intellectual property assets has become a key task in the “due diligence” exercise, a careful enquiry by the company’s purchaser, designed to identify, test and quantify this part of the purchase in relation to the price.

In all these circumstances, the use of NDAs is to try and provide some protection and to show that no general disclosure is intended.

There are two issues I want to address in this article:

1. whether NDAs are worth the paper they are written on; and
2. if they are, how does one manage the risks of unauthorised disclosure from a  practical perspective.

Are NDAs worth the paper they’re written on?

In South Africa, there is currently no general law of privacy and therefore information disclosed in confidence will not necessarily be protected by law. The Protection of Personal Information (POPI) Bill that is currently being drafted by the South African Law Commission is such a general law, but it is not yet in force. See our post “Privacy: Will the wait soon be over?“.  There are, however, some statutes (for example the National Credit Act) that protect “confidential information“. For the rest, confidentiality clauses in non-disclosure agreements are the only way of protecting commercially confidential information. Once POPI becomes law, confidential information will form a part of the definition of “personal information” that will be protected by the law.

NDAs are often not worth the paper they are written on for three reasons:

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   Tags: confidentiality agreement, NDA, non-disclosure