In order to understand how to write a valid non-disclosure agreement for software development, it is important to understand how a non-disclosure agreement works.

An NDA is an agreement between two parties to share confidential information and agree to not disclose it to a party outside of the agreement. Such an agreement may also be referred to as a: Confidential Agreement (CA), Confidential Disclosure Agreement (CDA), Secrecy Agreement (SA) or a Proprietary Information Agreement (PIA). Under the Indian Contract Act, 1872, non-disclosure agreements are legally binding.

Why is NDA important?

Non-disclosure agreements are an important legal document used to protect sensitive and confidential information being revealed by the disclosing party to the receiving party. To name a few situations, an NDA could come in handy when entering into a business deal with an outside party, starting a new project or hiring new employees. This ensures that crucial information like trade secrets, business strategies, proprietary information, etc. is protected from being made public.

Specifically, non-disclosure agreements are not a requirement in the software development process, but it is recommended when the information being disclosed to the outsourcing company includes confidential information.

Non-disclosure agreement for software development

In software development, source codes are of two types: open source codes and proprietary source codes. Open source code can be modified, used and shared by anyone. These source codes encourage collaboration and allow codes to be improved and made available to use for everyone.

Proprietary source code, on the other hand, falls under the category of intellectual property. To make changes to this code, the user would first have to seek permission from the owner(s). To protect proprietary source codes, and NDA may be used. 

Before you start writing a non-disclosure agreement for software development, it is important to consider what it is needed for and if it is essential. If for instance, all you require is a simple website or mobile app, then the legalities involved would only slow down the process.

However, if you are required to share trade secrets, source codes or other sensitive information or keep the project undisclosed, then it would be a wise decision to write a non-disclosure agreement for software development. 

After establishing the reasons for which your business requires an non-disclosure agreement for software development, the next step is to understand the two types of NDAs.

The first is a unilateral non-disclosure agreement. Under such an agreement, the disclosing party reveals information to the receiving party and the receiving party agrees to keep it secret. The second and relatively less common type of NDA is a mutual NDA. This is where both parties involved share information with each other and agree to protect each other’s information.

How to write a non-disclosure agreement for software development

Although there is no particular method to follow when drafting a non-disclosure agreement for software development, yet there are a few things to keep in mind that will allow you to write a strong NDA. A number of areas you should always cover in your NDAs are:

Parties to the Agreement

Under this section, it must be clarified which parties are to be included within the scope of the confidential information being shared. ​​​​​​​​​​​For software development, this would include the disclosing party as well as the software developer. Additionally, it is also recommended to include other team members like designers, product managers, etc who will also require access to sensitive information. 

Definition

​​​​​​​This section defines what form of information will be included in the confidentiality clause. This could mean written or oral form of communicating the information. It should be clearly defined to prevent the receiving party from discovering any loopholes.

Additionally, it also specifies the scope of the information. This consists of the most important aspect of an NDA as in this section, the disclosing party defines the information shared that is to be protected. The disclosing party would prefer to keep the definition of the scope of information as broad as possible to avoid any unwanted technicalities.

​​​​​​​Confidentiality Exceptions

Often it might be the case that some information cannot be kept confidential. The receiving party cannot be held accountable in the case that this information has been made public. These situations may occur when:

• The information is accessible to the public
• The receiving party already had access to the information
• The receiving party came to know of the information from a third party outside of the NDA obligation

Obligations of Involved Parties

There are two forms of obligations involved for the receiving party. 

The first is a  commitment to keep the information a secret. Secondly, the reason an NDA is extremely useful during software development is that the receiving party has an obligation to not use the information for their own benefit.

The receiving party may only use the information for the uses already mentioned in the NDA. Additionally, they may only share it with individuals who require it for purposes listed in the NDA. 

Duration of the Agreement

It is important to specify the duration of an NDA. Usually, it is defined as a time period of two or three years but could be more or less depending on each business. The NDA may also be considered to remain effective till the time that the information is considered confidential. If the information is revealed or if the disclosing party gives a notice to the receiving party, then also the NDA may be terminated.

Consequences

Without a clear description outlining the consequences of breaching a non-disclosure agreement, there is no purpose behind such an agreement. Usually, this section involves financial compensation for the disclosing party.

Although, these aspects of an NDA are extremely important, yet there are a few more things you should keep in mind to uphold the validity of the non-disclosure agreement.

1. It may seem like a good idea to define the confidentiality clause as broadly as possible. However, in order to avoid any problems at the time of enforcing the agreement, it is always advisable to only include information that needs to be kept confidential rather than a comprehensive statement.
2. The exceptions of the confidentiality clause should be clearly identified as the inclusion of this category of information in the definition of confidentiality will render the NDA invalid.
3. Lastly, and most importantly, you must make strong efforts to protect your confidential information. If in any way the information loses its status of confidentiality, then the NDA will become ineffective.

Conclusion

For software development, non-disclosure agreements are not `necessary but it is always advisable to write one. Furthermore, it is vital that you carefully consider and include all parties in the agreement who require access to the information. Your NDA should have a clearly defined confidentiality clause that protects all your sensitive information and the obligations of the receiving party towards this information should also be made clear.