Indemnity Clause in Non-Disclosure Agreement: What You Need to Know
A non-disclosure agreement (NDA) is a legally binding document that prohibits a person from disclosing confidential or proprietary information. This agreement outlines the terms and conditions of confidentiality between the parties involved.
However, just having an NDA in place may not be enough to protect your confidential information. An indemnity clause, which is often included in NDAs, is an important provision that can provide an added layer of protection.
What is an Indemnity Clause?
An indemnity clause is a provision in a contract that shifts the responsibility of financial losses from one party to the other. In an NDA context, this means that if one party breaches the agreement and discloses confidential information, they will be responsible for any financial losses incurred by the other party as a result of that breach.
For example, if a third party gains access to confidential information due to a breach by one of the parties, the party responsible for the breach would be responsible for any damages incurred by the other party as a result of the breach. This could include lost revenue, legal fees, and other related expenses.
Why Include an Indemnity Clause in an NDA?
Including an indemnity clause in an NDA provides an added layer of protection for the party disclosing confidential information. By shifting the financial responsibility to the party responsible for the breach, the disclosing party can recover the damages incurred as a result of the breach.
Additionally, including an indemnity clause can act as a deterrent for potential breaches. Knowing that they will be financially responsible for any damages incurred, the other party may be more cautious and diligent in their efforts to protect the confidential information.
What Should be Included in an Indemnity Clause?
When including an indemnity clause in an NDA, it’s important to clearly outline the circumstances under which the clause would be invoked. This could include clauses related to unauthorized access, negligence, or breach of the agreement.
It’s also important to clearly define the scope of the indemnity, including what damages and expenses would be covered under the clause. This could include direct damages such as lost revenue, as well as indirect damages such as legal fees and other related expenses incurred as a result of the breach.
Finally, it’s important to ensure that the indemnity clause is enforceable under applicable laws. This may require consulting with legal counsel to ensure that the clause meets all legal requirements.
Conclusion
Including an indemnity clause in an NDA can provide an added layer of protection for parties disclosing confidential information. By outlining the financial responsibilities of each party in the event of a breach, the parties can be better protected and more cautious in their efforts to protect confidential information. When drafting an NDA, it’s important to include a clear and enforceable indemnity clause that outlines the circumstances under which financial responsibility would shift and the scope of damages that would be covered.