NDA vs CDA: Which One is Right For You?

September 27, 2022
September 27, 2022
Gary Sangha | Founder & CEO

The terms Confidential Disclosure Agreement (CDA) and Non-Disclosure Agreement (NDA) are often used interchangeably, though contract lawyers may prefer one over the other depending on the context. Whether CDA vs NDA, both agreements spell out the terms for information security when one or more parties are working together. Here’s what you need to know about both, and why properly reviewing each is necessary when it comes to protecting sensitive information.

CDA resting on table next to laptop, phone, and cup of coffee.

What are NDAs?

An NDA is a contract that forbids the unauthorized release of important classified material that could be used against the company to gain a competitive advantage. 

NDA use cases may include:

  • Transactional mergers and acquisitions

  • Services provided by vendors or distributors

  • Investor information requests 

  • Customer agreements

  • One-way sharing of business and financial information

An NDA may cover: 

  • Proprietary or trademarked information

  • Business innovations and competitive secrets

  • Banking and financial information

NDAs essentially say, “Let’s not disclose information to anyone else, agreed?” An example might include a tech startup that asks employees to sign an NDA to keep contact lists and service charges out of the hands of competitors.

What are CDAs?

A CDA is a legally binding contract that requires a high level of proactive secrecy. CDAs are often used when entering into a professional business relationship where sensitive information must be shared with a number of parties, but kept out of the public eye. 

CDA use cases may include:

  • Partnership projects

  • Bilateral agreements

  • Service performance

  • Employee contracts

  • Consulting arrangements

A CDA may cover:

  • Limitations to the use of personal information

  • How information is safeguarded in electronic databases

  • How information is handled by employees, consultants, or freelancers

In essence, a CDA states, “I have confidential information that I will disclose, so let’s agree on how this information can be used and who it can be disclosed to.” Equipment manufacturers may ask suppliers to sign a CDA to keep their manufacturing methods private, for example. Or a scientist may use a CDA when sharing a patented design, prototype, or unpublished research with a pharmaceutical company.

What is the Difference Between an NDA vs CDA?

Though differences between an NDA vs CDA are subtle, they can include:

  • Geographic location: NDAs are popular in the U.S., while countries like Australia, England, and Canada prefer CDAs. 
  • Definition: An NDA allows a party to communicate nonpublic information to another. A CDA allows multiple parties to handle information with utmost secrecy. 
  • Nature: NDAs involve information of moderate significance. CDAs can include extremely sensitive material. 
  • Obligation: NDAs assume a one-way responsibility for confidentiality. CDAs may require two-way commitments to maintaining secrecy.
  • Use: NDAs are often used by startups or third-party partnerships. CDAs are used in high-value corporate transactions or in military service.

NDA vs CDA: Getting Both Right with LexCheck

Whether you choose an NDA or CDA, the consequences of failing to adhere to either are the same. When a violation occurs, there is a right to pursue legal action, which could lead to court-mandated financial compensation. Both types of documentation require time and care in developing the right content that matches the company’s capabilities, goals, and values. 

Often, a corporate legal playbook serves as the North Star by providing pre-approved clauses, terms, and conditions that must be included in every CDA or NDA. Contract drafters can use the most popular drafting software templates to insert boilerplate language and highlight areas where extra attention is warranted. While helpful, these tools do not go far enough to save lawyers time and improve negotiation results. 

Legal teams can enlist the help of LexCheck’s automated contract negotiation technology to redline drafts in less than five minutes. LexCheck scans newly uploaded agreements, including NDAs and CDAs, for any errors, omissions, and deviations from a company’s legal playbook—freeing in-house counsel to spend more time on high-value work. The LexCheck solution provides contextual suggestions for areas of improvement while accepting feedback from lawyers in a process dubbed as “machine learning.” Results are further improved with each agreement reviewed. 

By letting LexCheck take the first pass on an NDA or CDA review, legal teams save days—if not weeks—of their valuable time. Agreements that come back with minimal redlining can be quickly amended with a few clicks of a button and sent to the other party. Those with heavier markups can be automatically escalated to a senior lawyer for a more in-depth risk assessment, or sent back to the drawing board. Negotiations can be greatly expedited with contextual clarifications, and in an industry where corporate legal departments must stay competitive at all times, that’s a blessing.

LexCheck is the award-winning, automated contract review solution trusted by businesses across the country. To learn more about how LexCheck can help you, reach out to sales@lexcheck.com or request a demo.

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