When an NDA Is Breached
An NDA breach occurs when a party violates the terms of the confidentiality agreement — typically by disclosing, using, or failing to protect information that was designated as confidential. The consequences can be significant for both the party whose information was exposed and the party who breached the agreement.
How NDA Breaches Happen
Understanding how breaches typically occur can help you draft stronger agreements and take preventive measures.
Intentional Disclosure
The most obvious type of breach is when someone deliberately shares confidential information with an unauthorized party. This might include a former employee sharing trade secrets with a new employer, a business partner disclosing financial details to competitors, or a contractor using proprietary technology for another client.
Accidental Disclosure
Not all breaches are intentional. An employee might accidentally send an email containing confidential information to the wrong recipient. A laptop containing sensitive files might be lost or stolen. A team member might discuss confidential details in a public setting without realizing they are overheard.
Inadequate Security
If the receiving party fails to implement reasonable security measures to protect confidential information, this can constitute a breach even if no actual disclosure occurs. Storing sensitive documents on an unsecured server or failing to restrict access to authorized personnel can violate the NDA's security obligations.
Exceeding Authorized Use
An NDA typically restricts how confidential information can be used. If the receiving party uses the information for purposes beyond what the NDA permits — such as developing a competing product — this constitutes a breach even if the information is never disclosed to a third party.
Many NDA breaches go undetected because the disclosing party has no way of knowing their information has been shared. Building monitoring and notification mechanisms into your business relationships can help you identify potential breaches earlier.
Legal Consequences of an NDA Breach
Monetary Damages
The most common remedy for an NDA breach is monetary compensation. The disclosing party can seek several types of damages:
Actual damages — The demonstrable financial losses caused by the breach. This could include lost profits, reduced market share, diminished business value, or the cost of developing replacement technology.
Consequential damages — Indirect losses that result from the breach, such as damage to business relationships, lost opportunities, or reputational harm.
Liquidated damages — Some NDAs include a pre-agreed amount that the breaching party must pay in the event of a violation. Liquidated damages provisions are enforceable if the amount is a reasonable estimate of anticipated losses and actual damages would be difficult to calculate.
Injunctive Relief
In many cases, monetary damages alone are insufficient because they cannot undo the harm of information being disclosed. Injunctive relief is a court order that requires the breaching party to stop disclosing the information and take steps to prevent further dissemination.
There are two types of injunctions:
Temporary restraining order (TRO) — An emergency order that prevents further disclosure while the case is being heard. TROs can be obtained quickly, sometimes within days or hours.
Preliminary and permanent injunctions — Longer-term court orders that restrain the breaching party from using or disclosing the confidential information throughout and beyond the litigation.
Attorney's Fees
Many NDAs include provisions requiring the breaching party to pay the other side's attorney's fees in the event of a breach. Without such a provision, each party typically bears its own legal costs, which can make enforcement prohibitively expensive.
Termination of Business Relationship
Beyond legal remedies, an NDA breach often results in the immediate termination of the underlying business relationship. Employment agreements, consulting contracts, and partnership arrangements usually include provisions allowing termination for cause when an NDA is violated.
What You Need to Prove
To successfully enforce an NDA, you generally need to demonstrate:
- A valid NDA exists — The agreement was properly executed and is enforceable
- Information was confidential — The disclosed information falls within the NDA's definition of confidential information
- A breach occurred — The receiving party violated one or more terms of the NDA
- Damages resulted — You suffered actual harm as a result of the breach
The Challenge of Proving Damages
One of the biggest obstacles in NDA enforcement is quantifying damages. How do you calculate the value of a trade secret that has been leaked? How do you measure the impact of a competitor learning your pricing strategy? These questions can be complex and often require expert testimony.
Including a liquidated damages provision in your NDA can significantly simplify enforcement. By agreeing upfront on the financial consequences of a breach, you avoid the difficult task of proving exact damages later.
Practical Steps If Your NDA Is Breached
Document the Breach
Gather evidence of the breach as quickly as possible. This includes screenshots, emails, witness statements, and any other documentation that shows what information was disclosed, to whom, and when.
Assess the Scope
Determine how widely the information has spread. Has it been shared with one person, posted publicly, or distributed within an organization? The scope of the breach affects both the urgency of your response and the appropriate remedies.
Send a Cease and Desist Notice
A formal cease and desist letter puts the breaching party on notice that you are aware of the violation and demand that they stop any further disclosure. This creates a documented record and often resolves the situation without litigation.
Preserve Evidence
Take steps to preserve evidence before it can be destroyed. This might include sending a litigation hold notice to the breaching party, requesting that electronic records be preserved, or seeking a court order to prevent evidence destruction.
Evaluate Your Options
Consider the full range of options available: negotiation, mediation, arbitration, or litigation. The right approach depends on the severity of the breach, the value of the information, and the cost of pursuing each remedy.
Prevention Is Better Than Enforcement
While knowing how to enforce an NDA is important, preventing breaches in the first place is far more effective. Here are strategies to reduce the risk of a breach:
- Limit access to confidential information to people who genuinely need it
- Use secure sharing platforms rather than email for sensitive documents
- Implement access controls and audit logs for confidential data
- Provide training on confidentiality obligations to employees and partners
- Review and update NDAs regularly to ensure they remain current
Build a Strong, Enforceable NDA
The best defense against NDA breaches starts with a well-drafted agreement that clearly defines confidential information, sets explicit obligations, and specifies meaningful remedies. PactDraft helps you create comprehensive NDAs that include all the provisions needed for effective enforcement. Generate your customized NDA today and protect your confidential information from the start.