A Non-Disclosure Agreement (or NDA) and Confidentiality Agreement (or CDA) are well-known documents to the average entrepreneur for their general use of preserving the secrecy of confidential, proprietary, or sensitive data, which the parties involved should not disclose for a set period.
But, many businesses, creators, and freelancers are unaware that they are using these contract agreements improperly, because they believe there is no fundamental difference between a Non-Disclosure Agreement versus a Confidentiality Agreement. But that is wrong… there is at least one major distinction.
I used to think in the same way as many business-people who still believe that a Non-Disclosure Agreement and a Confidentiality Agreement have an identical function, yet I learned that even though two are confidential disclosure agreements with many overlaps in behavior, there is at least one major loophole that you should be aware of before you either sign your name or draw up one of these agreements for your next business dealing.
But first, let’s define the function of a Non-Disclosure and a Confidentiality Contract before we draw a contrast.
What is a Non-Disclosure Agreement?
A Non-Disclosure Agreement (or NDA) is an agreement between a “Disclosing Party” who wants to keep the secrecy of their personal, business, proprietary, and private information when engaging in communication or dealings with the “Receiving Party.”
The NDA is used by a person, creator, brand, or business to discourage any sharing of sensitive or private data to the public.
If I were to sum up the function of a Non-Disclosure Agreement, it would be to signal to the Receiving Party that you are not to share the secret data you’ve been entrusted with to anyone outside of your direct engagement with the Disclosing Party.
And let’s a designer is a approached by Disney / Marvel production studio whom just created a new live-action movie, and they’ve approached the designer to assist them with the 3D modeling final touch-ups of a main protagonist character for the film during its post-production.
Clearly, the filmmakers would like for the character work on the movie overall to remain undisclosed to any outside party in order to prevent loss of potential profits, narrative secrets, or the marketing impact close to the release date.
So we could use a Non-Disclosure Agreement for this scenario, because the designer is only privy to a single character being in the movie, not the scene or overarching story, and I would say that would be a simple secret for which the NDA would be perfect for due to compartmentalization of the information and the “need to know” nature of the scenario.
But what if Disney wanted more comprehensive restrictions due to the complex nature of your business relationship? Well then Disney would do what it has been doing for years to craft and maintain the public image of their leading entertainers…
A Confidentiality Agreement would be issued.
What is a Confidentiality Agreement?
A Confidentiality Agreement (or CDA), Like a Non-Disclosure Agreement, will still force the Receiving Party who will be privy to personal, business, proprietary, and confidential data to not share it with the public.
Yet, it also implies a higher level of responsibility for the safety, protection, and security of the personal, proprietary, and confidential information from being stolen, hacked, accidentally disclosed, or intentionally distributed publicly.
So it would be more beneficial for companies and entrepreneurs with multiple parties involved in the deal or if the business dealings are being conducted digitally to use a confidentiality agreement in order to uphold secrecy, accountability, and force all parties to take appropriate measures to protect your confidential data.
For instance, let’s use the real-life story of Jeffrey Wigand turned into a riveting movie called “The Insider,” starring Al Pacino and Russell Crowe.
Wigand was a former executive at the Brown & Williamson, who could not technically disclose, confirm, or deny any information about his work at the B&W tobacco company, because he signed a Confidentiality Agreement.
The tobacco company’s legal counsel knew a Confidentiality Agreement (and not a Nondisclosure Agreement) would be most appropriate for a team of scientists who were tasked with intensifying the addictive elements of their products to create more dependent consumers.
The reason why a Confidentiality Agreement was so restrictive to Mr Wigand was because it forced the him (as the Receiving Party) to uphold the secrecy of any direct, indirect, or circumstantial data he was privy to, but it also required him to take reasonable measures to secure confidential data from being stolen, discovered, deliberately or mistakenly distributed.
The Confidentiality Agreement should be useful to an organization who is interested in the Receiving Party to withhold any direct confidential data, but also it secures the ecosystem of information surrounding the sensitive data where any possible inventions, secrets, processes, and technology are involved which must also remain confidential.
List of Circumstances for use of Non-Disclosure Agreement Vs Confidentiality Agreement
I’ve consulted with several attorney’s on what should I consider before choosing one Secrecy Agreement over the other and ensure I’m making the best decision protect myself and my businesses. Here are the two factors I’ve determined that should be considered before choosing between a Non-Disclosure Agreement vs a Confidentiality Agreement:
1. Location or jurisdiction of the nondisclosure or confidentiality.
What area will you be receiving the secret information? because that can determine if an NDA or CDA will be enforceable.
2. Complexity and scale of the nondisclosure or confidentiality
If the deal is a single bit of data or inside information you will be privy to for personal or professional dealings, like a line of code, invention, or simple concept that you are asked to keep private? then a Non-Disclosure Agreement will be the most appropriate for you.
But, If the deal is involving a set of private data for the use of working with confidential systems, properties, or technologies then it is likely you will be dealing with a higher level of secrecy,
What’s the Main Difference Between a Non-Disclosure Agreement vs a Confidentiality Agreement?
So we’ve learned the main distinction between the two agreements are the Non-Disclosure Agreement should generally be used for simple and direct confidential information, while the Confidentiality Agreements ought to be utilized for more complex, multilateral, and large scale deals, because it will likely offer exposure to indirect, circumstantial, systemic, and/or procedural secrets which should also be subject to secrecy, as it surrounds the production or maintenance of the secretive information.