A key concern for start-ups is to ensure that information and trade secrets that give a company a competitive edge in the market do not fall into the wrong hands.
Businesses can protect their confidential information, ideas and know-how through non-disclosure agreements (NDAs). It is important to have a NDA in place from the very start of a business relationship to ensure that confidential ideas and information which have been shared or discussed are protected.
For start-ups in particular, with the pressures to remain innovative and to provide something unique to the market, there is a real need to get to grips with NDAs and their uses. In this article, we summarise why NDAs are so useful for start-ups, the different types of NDAs you can use, what NDAs can be used to protect and some key elements you may want to consider for your NDAs.
What is a NDA and why should you have one?
NDAs are commonly referred to as confidentiality agreements and they help to protect sensitive information that you may be required to share with another party during preliminary business discussions.
Start-ups find good use in NDAs when conducting preliminary discussions with investors, whose funds may be required to get the business off the ground, and clients and suppliers, that will be required to ensure there is market-need for the product and means to facilitate the product. You should have a clear purpose as to why you are sharing the information with the party and why you want to keep the information confidential.
Types of NDAs
There are two types of NDAs that are most commonly used: One-Way NDAs and Mutual NDAs.
One-Way NDAs should be used if you are disclosing confidential information, but the other party is not disclosing confidential information to you. One-Way NDAs are useful to enter into with investors as it is often the case that only the business will be disclosing trade secrets or know-how which needs to be protected. The NDA will ensure that the investor does not reveal confidential information that they access through the business.
Mutual NDAs should be used when both parties will be sharing confidential information with one another. Mutual NDAs will be used when you are thinking about partnering with another business and more involved discussions from both parties are envisioned.
What does a NDA protect – key elements to protect your business
NDAs are used to protect confidential and sensitive information, and for a start-up this is likely to include (but is not limited to) financial data and plans, specific business know-how, sales plans and data, customer information and data, trade secrets, processes or formulas, pricing information and ideas. The type of information that will be shared and that you will want to protect will depend on the kind of party you are engaging with, why you are engaging with them and the sector/industry of the business.
The NDA should clearly identify who the parties are, as it is between these parties that you intend the confidential relationship to be created. This helps to clarify who is being bound to keep the information secret and who may have access to the information, such as the employees of the business or the wider group companies (if applicable).
The NDA should also clearly define what falls within the scope of "confidential information" and should clearly set out what is excluded from this definition, i.e. information that is already public knowledge or in the public domain, information already known by the party you are engaging with and information required to be disclosed by law. 'Trade secrets' should be explicitly referred to in the definition of "confidential information", otherwise there is no certainty that trade secrets will be protected by the NDA. Including 'trade secrets' within this definition is important as businesses can steal trade secrets from one another.
Detail should be included in the NDA about why you are giving the other party the confidential information, so that it is clear in what capacity and context the information is being shared.
The laws of the UAE also protect the confidential information of businesses to some extent, independently of a NDA. For instance, Article 905 of Federal Law No. 5 of 1985 (UAE Civil Code) (as amended) provides that an employee must safeguard the industrial or commercial secrets of the business, even after their employment contract has terminated. Additionally, Article 120 of Federal Law No. 8 of 1980 (UAE Labour Law) (as amended) states that an employee may be dismissed without notice or payment if they reveal any secrets of the business. Despite the UAE law protections, we recommend having a well-drafted NDA in place for certainty that the relevant information will be protected from disclosure, not only just in the context of employees but by other parties that the business may engage with.
Length/Term of NDAs
There is no legal minimum or maximum term required for a NDA and confidential information can be protected under a NDA for as long as is required. The term of the NDA will often depending on the nature of the information being shared, in which context the information is being shared and the industry/sector the business operates in.
We always recommend drafting a set term in a NDA for certainty and should a NDA expire earlier than needed, a new NDA can always be entered into as necessary by agreement between the parties.
Governing Law of NDAs
In the UAE, the principle of freedom of contract is recognised and parties are free to decide the governing law and jurisdiction of the NDA. However, it should be borne in mind that the UAE Courts may take jurisdiction themselves in certain cases including employment related issues.
Please do get in touch should you wish to discuss any of the topics covered in this article or if you would like further information on NDAs. We would be happy to provide our assistance.
In our next article, we will look at data protection in the UAE and the obligations in relation to the collection and processing of data.
