Indemnities in a Non-Disclosure Agreement
We comment on the inclusion of indemnities in a non-disclosure agreement (“NDA”), in this Part 4 of the In-House Legal Solutions NDA Guidance Note Series.
Whilst not market standard, it is not uncommon to see a request for indemnification for all losses (damages, costs and expenses) arising out of a breach of an NDA crop up in the initial draft. It will often be a point of contention and negotiated quite heavily.
The stance you take will depend on whether you are the party disclosing or receiving the confidential information, as indemnities are usually disclosing party friendly.
From the receiving party’s point of view, indemnities are a red flag, and they may wish to delete an indemnity straight away or seek to limit the damages that the disclosing party is entitled to, by excluding indirect, financial and consequential losses and only to the extent that the disclosing party has taken all reasonable steps to mitigate its losses.
However, the discloser may push quite strongly for indemnification depending on the nature of the information being disclosed and the implications of breach. Indemnification would relieve the disclosing party of having to mitigate any loss and they may argue that much of the harm caused by a breach may be indirect or economic in nature so they will not agree to excluding this. There may also be more favourable time limits in their being able to bring a claim under and indemnity as opposed to a damages claim.
It is worth bearing in mind however that the absence of an indemnity does not preclude the disclosing party from being able to claim damages or seek an injunction for example, provided that the NDA is drafted so as to cater for this.
Inevitably indemnity clauses will be heavily negotiated and will centre around the facts and the likely losses and risks involved in the unauthorised disclosure of confidential information. It is very important to carefully consider and seek legal advice when faced with such clauses.
In-House Legal Solutions can help you to ensure that your business needs are adequately protected when negotiating NDAs. For more information or to discuss this further, please contact [email protected].