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It's Essential To Retain A China Lawyer To Draft A Non-disclosure Agreement In English

A Non-Disclosure Agreement (also known as a "Confidentiality Agreement") is used when someone with an unpatented idea shows it to another party, and wants that party to maintain as confidential any information he learns about the product as a result of the meeting.

As experienced attoreny practising in China, we have drafted numerous Non-disclosure Agreement in English for our foreign clients. It's essential to enter into such non-disclosure agreement in China, since it will be treated as valid evidence on which your rights when dispute arise during executing the agreement. A non disclosure agreement is an agreement between two individuals or organizations restricting one individual from disclosing company business, proprietary processes or paperwork, or trade secrets, of the business.

The agreement, often called a confidentiality agreement, includes several types of closely held information:

l          Information on the nature of and formulas for patents, copyrights, trademarks and service marks

l          Information on company processes ("the way we do things here")

l          Information on trade secrets- a formula, device, or mechanism, for example - that provides a competitive advantage to a company and which is severely compromised if disclosed.

l          Non-disclosure agreements are used in employment situations to restrict an employee from stealing company secrets, inventions, or proprietary processes.

 

They are also used when presenting business plans or applications in situations where the information may be stolen by the person receiving the application. For example, a person may present a patent application to an attorney, who might take the patent and use it for his/her own benefit. Or a business person might present a business plan for a unique new business to a venture capital firm, which might take that idea and use it without permission.

Having a confidentiality agreement does not prevent an idea from being stolen, but it does give the person who owns the idea the leverage to litigate to recover losses.

Non disclosure (confidentiality) agreements most often include a provision that the plaintiff may seek an injunction against the other party to prevent further damage.

For many companies today, one of their most valuable assets is their Intellectual Property (IP). Companies must take appropriate steps to protect the value of this asset, as they would any physical asset, yet must also utilize it to its full potential.

Much like a distribution company would not keep its trucks in the garage to keep them from being involved in an accident on the highway, a start-up company can't keep its ideas locked away from the business partners who can make it a success. The distribution company protects its asset (trucks) with vehicle insurance so they can use them without exposing the company to financial ruin. The start-up company can protect their asset (IP) in several ways. One way is through a non-disclosure agreement.

A non-disclosure agreement (NDA), sometimes called a confidentiality agreement, allows a company to share its IP with others, whose input it needs, without unduly jeopardizing that information. For example, if you have a new product or feature in development, but you need to consult an expert for advice on how to proceed, an appropriate NDA can ensure that the expert doesn't hand the details of your new product to a competitor of yours.

A non-disclosure agreement is a legal contract between you and the other party. You agree to disclose certain information to them for a specific purpose. They agree to not disclose that information to anyone else. Sample agreements are included at the bottom of this article.

A non-disclosure agreement is only one way to protect your IP. In their excellent article Covenants Not to Compete in Intellectual Property Transactions, Lott and Freidland states "In the protection of intellectual property, trademarks, patents, copyrights and trade secrets, it is important to utilize all means available. Obtaining appropriate registrations, and taking adequate security precautions are critical, but they are no substitute for contractual restrictions on the use and disclosure of intellectual property."

Some famous Chinese University uses NDAs to preserve unfiled patent rights, trade secrets, business plans, and other confidential and proprietary information and requires them of their researchers.

Why An NDA?

You use a non-disclosure agreement when you have information that you need to give to someone, but you don't want them to pass that information to anyone else. This might occur because:

l          You have developed a prototype of a new widget. Before you decide whether or not to produce it, you need to get a cost estimate form a fab shop

l          You have developed a new business model that you want to present to venture capitalists for funding, but you don't want them to take the idea and develop it on their own

l          You want to respond to a confidential RFP from the government but no one in your organization can write the proposal. You need to hire an outsider, but don't want him disclosing to your competitors what he learns

l          You are trying to sell your company and the buyer wants details on your operations. You are concerned that they not cancel the deal as soon as they learn all your secrets and go use them themselves.

Here is a free sample non-disclosure agreement in English drafted by a China lawyer submitting to our China Law Blog:

NON-DISCLOSURE/NON-COMPETE AGREEMENT

This agreement is made as of the 23rd day of June, 2002, by and between: ACME Inc. located in CITY, STATE and JOHN INVENTOR located in CITY, STATE.

This Agreement shall govern the conditions of disclosure by JOHN INVENTOR to ACME Inc. of certain "Confidential Information" including but not limited to prototypes, drawings, data, trade secrets and intellectual property relating to the "Patent Pending" invention named "Mouse Trap" invented by JOHN INVENTOR.
With regard to the Confidential Information, ACME Inc. hereby agrees:
1. Not to use the information therein except for evaluating its interest in entering a business relationship with JOHN INVENTOR, based on the invention.
2. To safeguard the information against disclosure to others with the same degree of care as exercised with its own information of a similar nature.
3. Not to disclose the information to others, without the express written permission of JOHN INVENTOR, except that:
a. which ACME Inc. can demonstrate by written records was previously known;
b. which are now, or become in the future, public knowledge other than through acts or omissions of ACME Inc.;
c. which are lawfully obtained by ACME Inc. from sources independent of JOHN INVENTOR;
4. That ACME Inc. shall not directly or indirectly acquire any interest in, or design, create, manufacture, sell or otherwise deal with any item or product, containing, based upon or derived from the information, except as may be expressly agreed to in writing by JOHN INVENTOR.
5. That the secrecy obligations of ACME Inc. with respect to the information shall continue for a period ending 3 years from the date hereof.

JOHN INVENTOR will be entitled to obtain an injunction to prevent threatened or continued violation of this Agreement, but failure to enforce this Agreement will not be deemed a waiver of this Agreement.

IN WITNESS WHEREOF the Parties have hereunto executed this Agreement as of the day and year first above written.

ACME Inc.

By: _____________________________ Date: _____________

Title:___________________________


JOHN INVENTOR and SIGNATURE

You may use this non-disclosure agreement(English version) for free. However, it may not fit your specific situation. As experienced Chinese contract lawyer, I strongly recommend that you retain us as your legal counsel in China to accomplish this task so as to avoid any possible legal risk and risk of loss. 

 
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