Non-Disclosure Agreements (NDA)

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Thema: Non-Disclosure Agreements (NDA)

A non-disclosure agreement (NDA) regulates the handling of certain sensitive information by one or more contracting parties. It is essential to conclude a comprehensive non-disclosure agreement before exchanging such information. This enables the adequate protection of one's own sensitive information and simplifies the punishment of breaches of duty, while minimizing liability risks when handling third-party information.

We have compiled a brief overview of the topic of NDAs in our FAQ below.

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A non-disclosure agreement should always be concluded if at least one of the contracting parties comes into contact with sensitive information of the other party.

Important terms, in particular "confidential information", should be defined in the NDA for reasons of legal certainty.

Provisions should be included regarding the consequences of possible breaches of the confidentiality agreement.

In order for the NDA to be effective, care should be taken to ensure that the clauses comply with the law on general terms and conditions.

FAQ: Design of NDA

When does it make sense to sign a non-disclosure agreement?

By default, NDAs should be concluded especially by companies that (regularly) handle particularly sensitive and confidential information, such as software and high-tech companies, as part of projects that require a lot of know-how or for new or innovative products and services.

Particularly in constellations where feedback from third parties is explicitly desired or even required (as is often the case with start-ups, for example), strict confidentiality can even be counterproductive.

Problems can arise if the desired signing of a confidentiality agreement is misunderstood and taken as a signal of mistrust.

Which types of contract are particularly suitable for an NDA?

Non-disclosure agreements are always a good idea for contracts in which sensitive information is shared, such as license agreements, technology agreements or company sales agreements.

What should be regulated in the confidentiality agreement?

  • Scope in terms of time and subject matter, in particular the definition of confidential information
  • Persons covered by the NDA
  • It should also be stipulated to which third parties information may be disclosed and which requirements these persons must fulfill (e.g. sign a non-disclosure agreement themselves or already be obliged to maintain confidentiality due to legal regulations)
  • Scope of the permitted use of confidential information
  • Confidentiality measures, e.g. regulations on certain communication channels, storage locations of information (especially for storage locations abroad), encryption
  • Provisions on intellectual property rights can be useful, even if it is only intended to clarify that the NDA does not establish any intellectual property rights
  • Contractual penalties are often useful to ensure that the confidentiality agreement can be effectively enforced
  • Applicable law or place of jurisdiction

What is confidential information?

There is no fixed definition of what constitutes confidential information. It is therefore essential to clearly regulate this in the contract in order to determine the scope of the NDA and to avoid contractual loopholes.

Although the definition of trade secrets in the Trade Secrets Act can serve as a guide, the term confidential information should be explicitly defined in the non-disclosure agreement as a central connecting factor. Depending on how comprehensive the NDA should be, it may make sense to explicitly mark confidential documents as such or to choose a broad term that also includes information that has not been explicitly listed but is obviously confidential or whose confidential treatment is to be expected from an objective point of view. The latter is particularly useful if a large amount of information is to be recorded as confidential, as otherwise there is a risk that the labeling obligation will not be adhered to and relevant information will be forgotten.

The exceptions should also be mentioned. These can be explicitly named documents or information that does not constitute confidential information or information that is already known to the general public, originates from third parties, was obtained by legitimate means independently of the other contracting party, etc.

One-sided or two-sided NDA?

Confidentiality agreements can either oblige only one party to maintain confidentiality or both parties. Unilateral NDAs are always appropriate when only one party has to disclose sensitive data (for example, when initiating a contract, the provider discloses information about the functionality of its product) so that the other party can make a fully informed decision; whereas bilateral non-disclosure agreements are useful when both parties disclose internal company information.

Although unilateral obligations are generally easier to draft, they take longer to negotiate due to the unbalanced position.

What duration is suitable for a confidentiality agreement?

This question must be answered individually depending on the type of contract and the desired security. If the greatest possible security for the information is to be achieved, an unlimited term is recommended. However, it is less restrictive to limit the term to a certain number of years, as is often agreed in M&A contracts, for example.

What should be considered in the termination regulations?

Arrangements for the period after the end of the business relationship or term should be made in any case in order to protect the confidential information long-term. In the vast majority of cases, it will make sense to stipulate that all documents (including any notes, etc.) containing confidential documents must be destroyed or returned.

How to handle a possible breach of the NDA?

If one of the contracting parties breaches the non-disclosure agreement, claims for damages and injunctive relief arise at the expense of the infringer, but these do not represent a negligible risk. On the one hand, the burden of presentation and proof lies with the infringed party, which makes it considerably more difficult to enforce the claims. On the other hand, it is also difficult for the opposing party to estimate exactly what claims for damages they will face because the amount is usually difficult to calculate.

It therefore often makes sense to contractually regulate the consequences of possible infringements in order to avoid later conflicts. For example, relatively low-threshold regulations on the burden of proof or the determination of a lump sum compensation for damages.

It is also possible to stipulate a contractual penalty for breaches of the NDA. However, it should be noted that if the confidentiality agreement is structured as a GTC, the provisions of GTC law apply, which may prevent it from being effective. Particularly in the case of unilateral NDAs, high demands are placed on proportionality and transparency, which is why the amount and conditions of the contractual penalty should be differentiated depending on the type, scope and severity of the breach (for example, whether the NDA was breached intentionally or only negligently).

What must be considered for a non-disclosure agreement to be effective?

In principle, general contractual freedom applies to the NDA, meaning that everything can be regulated as desired by the parties. However, restrictions may arise in particular from the law on general terms and conditions, the prohibition of immorality in the German Civil Code (BGB) and competition law.

  • GTC law: If the confidentiality agreement is structured as a GTC and German law is applicable, the confidentiality agreement must meet the requirements of Sections 307 et seq. of the BGB. To this end, it is particularly important that the contractual partners are not unreasonably disadvantaged, which is why sufficient exceptions to the confidentiality obligation should be provided for. These exceptions should particularly include information that was already known to the recipient before it was made available or was generally known, that became generally known after the conclusion of the NDA without there being a breach of confidentiality obligations by the obligated party or information that must be disclosed to authorities (e.g. as part of an investigation).
  • Immorality: Section 138 of the German Civil Code (BGB) precludes the validity of the non-disclosure agreement if it goes so far as to unduly restrict entrepreneurial freedom.

Competition law: In addition, statutory or contractual non-competition clauses may also prevent non-disclosure.

What is the relationship between an NDA and the Trade Secrets Act?

A confidentiality agreement can also be considered a suitable confidentiality measure within the meaning of the Trade Secrets Act. To this end, it must make it sufficiently clear to the parties involved what the content and scope of the confidentiality obligations are and the interests of both parties must be appropriately balanced.