Non Disclosure Agreement(NDA): A vital protective tool for protection of Trade secrets of SMES.



Trade secrets are important in today’s business world particularly in Small and Medium-sized Enterprises (SMEs). In Nigeria, SMEs constitute as large as 84% of the employment and workforce and their importance to this economy cannot be underestimated. However, a lot of these SMEs are unaware of the importance to secure their trade secret and how to protect their trade secrets with a confidential agreement. This article explains the scope of trade secrets and confidential agreements or clauses, and how it can protect SMEs.

A trade secret is a part of an enterprise’s intellectual property. A trade secret is a type of intellectual property that comprises of formulas, practices, processes, designs, instruments, patterns, or compilations of information that have inherent economic value because they are not generally known or readily ascertainable by others, which the owner takes reasonable measures to keep secret.

A trade secret is any practice or process of a business enterprise that is generally not known outside of the enterprise. A piece of information that is considered a trade secret is one that gives the business an economic advantage over its competitors and is often a product of their research.

For any process or practice to be considered a trade secret, it must have first met these requirements:
It must be a secret known only to a limited number of persons;
The enterprise must have made a reasonable effort to conceal this information to the public. Intellectual property that has been made public by a company is registered as patents; and
The secret must contain information that contains an economic or commercial value to the owner or holder.

Trade secrets take a variety of tangible and intangible forms from a proprietary process, instrument, pattern, design, formula, recipe, method, program, or code to a practice that is not evident to others and may be used as a means to create an enterprise that offers an advantage over competitors or provides value to customers.

From the above definitions, it is clear that trade secrets are secret practices and processes that give a business an economic advantage over its competitors, and there is the need to keep them confidential. This responsibility falls on the enterprise holding the secret, and this is carried out through the use of legal security measures.

SMEs holding trade secret must protect against its theft and this can be done through the use of confidentiality agreements or clauses. These agreements or clauses are signed by the secret information holders (the enterprise) and the receiver (its employees or whomever it is contracting with at the time) and a breach or violation attract a penalty.

Confidentiality Agreements are primarily Non-disclosure and Non-compete Agreements or Clauses. For this discourse, this article gives an in-depth analysis of non-disclosure agreements or clauses and how they protect SMEs.

A Non-disclosure Agreement or Clause is a legally binding contract or clause that establishes a confidential relationship between a person who holds any form of trade secret and the person to whom the secret is disclosed. The party or parties signing the agreement agree that sensitive information they may obtain will not be made available to others. This form of agreement or clause serves these salient functions:

They protect sensitive information.
By signing a non-disclosure agreement, parties promise not to divulge or release information shared with them by the other people involved. If the secret information is disclosed, the injured person can claim a breach of contract.

In the case of a new product or concept development, a Non-Disclosure Agreement can help the inventor keep patent rights. In many cases,public disclosure of a new invention can void patent rights. A properly drafted non-disclosure agreement helps the original creator hold onto the rights to a product or idea.

Non-disclosure agreements expressly outline what information is private. In many cases, the agreement serves as a document that classifies exclusive and confidential information. One of the common application of an NDA is in a Contract of Employment, where employees promises confidentiality of secret information that is disclosed during employment or related types of business transactions. By using an NDA or Non-Disclosure Clause in a Contract of Employment, an employer can ensure that its secrets stay enclosed by giving the company legal recourse, against an employee who wrongfully discloses them.

An NDA is a legal document or a clause that creates a legal obligation between the parties to maintain the privacy and secrecy of information shared. Any party infringing the agreement would be legally liable to compensate for damages.

Usually, it states, conspicuously, anything that comes under the bracket of ‘confidential’ in the long run avoiding any ambiguity or loss of information.
It deters the disclosure of trade secrets between two or more contracting parties, thereby encouraging trust in a business transaction.

Its sole purpose is to protect all disclosures of intellectual property (including trade secrets, proprietary information, and other confidential information) and safeguarding the organization as a whole.

An NDA prevents the disclosure of trade secrets within a time limit. In the sense that parties in an employment or business transaction would be bound not to disclose the secrets of the company during the life of the transaction or a period of time after the transaction has ended and in some cases, for a perpetual period.

A trade secret is an effective tool for competitiveness among enterprises and a well-kept trade secret translates into growth and longevity of the holding enterprise. On this premise, SMEs are advised to protect their trade secrets through the use of non-disclosure agreements or add a non disclosure clause in transactions with investors, creditors, employees etc. Employees in this case will be required to agree not to disclose their prospective employer’s proprietary information, to surrender or assign to their employer ownership rights to intellectual work and work-products produced during the course (or as a condition) of employment, and to not work for a competitor for a given time (sometimes within a given geographic region). Violation of the agreement or clause, as the case may be, attracts damages i.e. financial penalties or fine or injunction which operate as a disincentive to reveal trade secrets.



Anthony Onwukwe is a 300 Level Law Student of University of Nigeria, a legal researcher and Author.

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