How to Define Purpose in a Non-Disclosure Agreement?

One of the most crucial yet often overlooked components of a well-drafted non-disclosure agreement (NDA) is the “Purpose” clause. This in-depth guide will walk you through the strategic, legal, and practical aspects of defining purpose in an NDA, ensuring you can protect their confidential information with precision and confidence.

What is the Purpose Clause in an NDA? 

The “Purpose” clause in a NDA outlines the reason why confidential information is being shared between parties. It sets the scope and context for the disclosure, ensuring that the receiving party uses the information only for the agreed-upon objective.

Why it Matters: 

• It limits how the disclosed information can be used
• It helps courts determine if a breach has occurred
• It ensures alignment between the parties
• It protects against misuse or unauthorized exploitation

Failing to define the purpose can lead to:

• Misuse of confidential information
• Legal disputes over scope and intent
• NDA being declared unenforceable
• Loss of competitive advantage

How to Define Purpose in an NDA: Step-by-Step

• Be Specific, But Not Overly Restrictive

A vague purpose can render your NDA unenforceable, while an overly narrow one can limit your flexibility. Strike a balance.

Example:

“The purpose of this agreement is to evaluate the feasibility of a potential business partnership between the Disclosing Party and the Receiving Party.”

• Use Clear and Unambiguous Language

Avoid legalese and ambiguous terms. Courts interpret contracts based on plain meaning.

Avoid:

“For general business purposes.”

Use:

“To assess the potential for a joint venture involving the development of a mobile application.”

• Align Purpose with Confidential Information

Make sure the defined purpose matches the type of information being disclosed. If you're sharing software code, the purpose should reflect that.

Example:

“To enable the Receiving Party to evaluate the Disclosing Party’s proprietary software for potential licensing.”

However, parties must be vigilant, as any information shared outside this scope is unprotected.

• Include Time Frames or Milestones where relevant

If the disclosure is tied to a project or timeline, include that in the purpose.

Example:

“For the duration of the six-month pilot project to test the integration of the Disclosing Party’s CRM system.”

Examples of Well-Defined Purpose Clauses

Here are some purpose clauses tailored to different industries and use cases:

🔧 Technology Company

“To allow the Receiving Party to evaluate the Disclosing Party’s proprietary algorithms for potential integration into its existing analytics platform.”

🎬 Entertainment Industry

“For the purpose of reviewing the script and production plan of a television series under consideration for co-production.”

🏥 Healthcare

“To assess the feasibility of a joint research initiative involving patient data analytics, subject to compliance with data protection laws in Hong Kong.”

💼 Employment

“To enable the employee to perform their duties as Chief Marketing Officer, which includes access to confidential marketing strategies and client data.”

Ready to Create Your NDA?

👉 Start drafting your NDA now with DocPro’s customizable NDA template. Whether you're protecting a startup idea, sharing sensitive data with a vendor, or onboarding a new employee, Docpro has the right template for you. 

Want to go deeper? Check out our other expert blogs on NDAs:

• 📄 Term of the NDA: Time Limits For Confidential Obligations
• 🛡️ When Is an NDA Important?