In manufacturing, a non-disclosure agreement (NDA) is a contract that prevents a manufacturer from disclosing a business's or individual's trade secrets or sensitive information. NDAs protect intellectual property (IP), ensuring that product designs don't reach competitors, which would devalue the IP and potentially cause significant financial losses.

Both the manufacturer and the client sign the NDA, making it legally binding. However, because IP and non-disclosure laws vary by country, it is crucial to tailor the NDA to the specific product and the jurisdiction where it will be manufactured.

An NDA is crucial for several reasons. Its primary purpose is to prevent a manufacturer from leaking confidential information, which could reduce a product's value. By having a manufacturer sign an NDA, a business or individual can protect its IP, ensuring trade secrets stay within the factory and are not shared with competitors.

Additionally, an NDA can prevent a manufacturer from using IP and trade secrets in other ways. For example, it can legally prohibit a manufacturer from making and keeping its own copies of a product without technically disclosing the information.

While drafting an NDA can seem daunting, it is essential to avoid potential financial losses. It is also crucial to sign an NDA before any exchange of trade secrets or other IP occurs. If such an exchange happens before the NDA is signed, the agreement may not cover the previously shared information.
 

What should you watch for in an NDA?
For businesses and individuals unfamiliar with NDAs, it can be beneficial to seek legal assistance before signing the agreement. However, there are several key points to include when drafting an agreement with a manufacturer.

Region
It's important to recognize that NDAs vary by country and jurisdiction. An NDA valid in the U.S. might not be legally binding in China, and vice versa. Therefore, understanding the specific rules and regulations in the manufacturer's jurisdiction is crucial.

Disclosure
Regardless of location, certain key points must be included. Firstly, an NDA should state that the manufacturer cannot disclose the business's or individual's trade secrets without their approval. Additionally, it can specify that all shared information—whether written, physical, or digital, regardless of its status as a trade secret—must be kept confidential.

Use/License
A thorough NDA should also prevent the manufacturer from using the client's IP for its own products. Simply appropriating IP and trade secrets doesn't always breach non-disclosure agreements, so it's crucial to outline specific terms prohibiting the manufacturer from creating its own version of the design. The NDA should specify that confidential information cannot be used to develop competing products.

Circumvention

In addition to non-disclosure and non-use agreements, it's often beneficial to include terms of non-circumvention in many situations. This ensures that if a business or individual is producing a product for a third party (like a small electronics designer creating a component for an international hardware company), the manufacturer cannot approach the third party with a competing proposal behind the client's back.

Including non-circumvention terms helps prevent manufacturers from undermining third-party agreements. It's important to note that manufacturers could otherwise bypass such deals without necessarily violating non-disclosure or non-use terms.