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What is the Difference Between Non Disclosure Agreement and Confidentiality Agreement?

July 2, 2021

When it comes to protecting private information from getting shared with third parties, two documents come to one’s mind, the Non-Disclosure Agreement and the Confidentiality Agreement. A Non-Disclosure Agreement (or an NDA, as it is popularly called) and a Confidentiality Agreement essentially serve the same purpose, i.e. protecting the information between the signatories parties of the agreement and preventing it from getting public or shared to a 3rd party. But, there is still a lot of confusion on the nomenclature of such agreements. In this blog, we try to debunk all the commotion and explain the meaning of both of these inter-changeable names.

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What is a Confidentiality Agreement?

A Confidentiality Agreement or a CDA is a written legal contract that lists a series of binding conditions, inhibiting an individual from disclosing confidential information. A Confidentiality Agreement is commonly used in organizations which deals with a lot of sensitive and secretive information.

Not disclosing information and making sure that the information remains secret are two aspects of a Confidentiality Agreement. Other benefits of a CDA are as follows,

  • Placing restrictions on how the information in question can be used
  • Protecting databases
  • Preventing employees from stealing information
  • Ensuring that subcontractors are also bound by the same CDA and others

CDAs are more frequently used in employment situations, particularly where the public disclosure of certain commercially-sensitive information would lead to a monetary loss of some kind. They can also be used in personal situations where leaked sensitive information.

When to use a Confidentiality Agreement?

Here are some scenarios where the name Confidentiality Agreement used often,

  • Confidentiality Agreement is used in cases where a higher degree of secrecy is required. Where the term Non-Disclosure implies that you should be mindful and not disclose any information, confidentiality implies proactively keeping the information secret. This could include putting restrictions on the use of confidential information, protection of electronic databases, preventing theft by employees, requiring sub-contractors to be bound by the same agreement, etc.
  • Confidentiality Agreement is more frequently used in employment or personal situations. The information here could be commercially sensitive that you come across during employment or information that is potentially personally damaging. For example, keeping details of a dispute (or even the fact that there was a dispute) from becoming public knowledge.
  • Confidentiality Agreement is used more frequently in case of bi-lateral or multi-lateral agreements. Bi-lateral or multi-lateral agreements involve minimum of two parties. For example, a confidentiality agreement between an original equipment manufacturer (OEM) and a supplier. The confidentiality agreement permits the OEM to provide confidential specifications to the supplier and the supplier to disclose details about its proprietary manufacturing process to the OEM. Both parties are disclosing information that, if leaked, could be detrimental to their businesses.

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What is a Non-Disclosure Agreement (NDA)?

Non Disclosure Agreement and Confidentiality Agreement are very similar in nature.

An NDA is a legally binding confidentiality agreement, or non-disclosure agreement, which restricts one or both signing parties from revealing confidential information to other sources.

Confidential items that an NDA might cover include:

  • proprietary systems (like in-house software)
  • internal data (like consumer behavior or business relationships)
  • additional trade secrets (like food recipes)

If you breach an NDA, you could face serious legal consequences. Pay special attention to the terms before you sign an NDA.

You can know more about an NDA by clicking here.

When to use an NDA?

Here are some scenarios where it makes sense to use the term Non Disclosure Agreement,

  • Non-Disclosure Agreement is more frequently used in third party or start up situations. These third parties could be vendors, suppliers, customers or potential investors and the type of information that needs to be kept secret could be a trade secret, patent, invention, intellectual property, pricing arrangement, financial information, etc.
  • Non-Disclosure Agreement is more commonly used in the US. And by contrast, the term Confidentiality Agreement is more commonly used in Australia, New Zealand, England and Canada.
  • Non-Disclosure Agreement is used when the agreement is one-way (or unilateral). But if there is a two-way (or multi-lateral) exchange of secret or commercially sensitive information, the agreement is more likely to be titled Confidentiality Agreement.

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To know more about unilateral NDAs click here.

Final Thoughts

Non Disclosure Agreement and Confidentiality Agreement, irrespective of different names, essentially serve the same purpose, i.e., to protect the information, keep it secret, and prevent it from getting public. The important part of such agreements is their contents. A robustly written NDA or Confidentiality Agreement can save your firm from getting into embarrassing situations which may turn into a PR nightmare.

Know more about the importance of contents of an NDA or a Confidentiality Agreement.

About Author

Utkarsh writes blogs for eSahayak. When not writing, he is busy reading or learning something new.

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