Non-disclosure agreements (NDA) facilitate the exchange of ideas and confidential or proprietary information by (i) limiting the permitted purpose for which such disclosed information may be used, and (ii) imposing secrecy obligations on the receiving party. If both parties are exchanging confidential information, a non-disclosure agreement would be ‘mutual’. Otherwise, an NDA may be one-sided, usually drafted by the disclosing party and protecting the latter against misappropriation of its disclosed confidential information.
A Non-disclosure agreement is often also referred to as a Confidentiality agreement or a Secrecy agreement (or the abbreviation NDA or CDA).
Protection of confidential information #
A Non-disclosure agreement enables parties to protect their know-how and technology against misappropriation or abusive use by the other party. It is legally difficult to protect ideas, concepts, know-how, general technology and many software functionalities because these elements fall outside of the standard categories covered by intellectual property law, such as, copyrighted works, patented inventions, and certain designs.
Intellectual property rights in NDA’s
The Model Contract contains a simplified provision regarding the intellectual property rights of the disclosing party: any improvement of the disclosed information, even when proposed or suggested by the receiving party, will be owned by the disclosing party. This prevents claims to co-inventorship, co-ownership and other related complications.
Avoid negotiation of Non-disclosure agreements #
A non-disclosure agreement should be signed soon after the contact between the parties starts in order to facilitate disclosure and further the effective negotiations concerning the main contract. The non-disclosure agreement should therefore not contain significant areas of negotiation.
The “Purpose” in a non-disclosure agreement #
One of the key clauses is the formulation of the defined term “Purpose”. The Purpose of a non-disclosure agreement determines what a receiving party may and may not do with the disclosed confidential information. The Purpose should be formulated accurately and in a sufficiently narrow manner. A narrow definition prevents that the receiving party uses the confidential information for competitive aims, for conducting a fishing expedition into product specifications with the aim of developing the same technology itself or with another party, or any other undesired purposes.
An appropriate Purpose could be, for example:
“discussing the feasibility of jointly developing product X to be used in market A and exchanging information about certain proprietary, secret technologies, including the possible terms and conditions of a joint development project”
“assessing the attractiveness of entering into a contractual alliance related to entering into the market of country B, including discussion on the possible terms and conditions of a contractual alliance”
“Investigating the appropriateness of entering into a long-term supply agreement in relation to products Y and Z to be sold in the region of South East Asia, including discussion on the possible terms and conditions of a long-term supply”
Not for pre-patent purposes #
The Model Contract is not intended for use where patentable inventions are involved because more care is desired in order to prevent claims of co-inventorship or ‘prior use’. Nonetheless, if certain materials (or software source code) are disclosed for testing purposes, it is desirable to expressly provide that the materials or source code may not be analysed or re-engineered (unless analysis or re-engineering is the Purpose of the non-disclosure agreement).
Confidential information and competition law #
Due care must be exercised in the disclosure of confidential information which triggers concerns from an antitrust or competition law perspective. Although development of (new) technology is usually exempted, this is usually not the case with respect to information regarding market shares, sales figures or cost price elements (or the parties’ intentions or plans to develop markets, to change pricing or to improve cost price). It is a gross violation of antitrust or competition law to enter into a non-disclosure agreement in the context of price-setting arrangements, competing procurement/tender processes and similar acts.
Duration of confidentiality #
Depending on the Purpose of the non-disclosure agreement, the term during which confidential information must be kept secret and treated confidentially with due care might range from (usually) six months (in case of simple product development or assessing a long-term supply relationship) to eight or ten years (in case of joint technology development).
See also the subchapter on confidentiality clauses.