NDA - when one is really needed

"Non Disclosure Agreements" or short "NDA" have become an integral part of everyday business life. In which cases does it make sense to sign an NDA? A checklist for companies.‍

Key Message: NDAs are absolutely necessary for inventionsthat are not yet patent-pending and for particularly important trade secretsthat your competitors must not learn. However, ensuring the de facto protectionof confidential information is at least as important as concluding an NDA.

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In detail:

Basic idea of NDA

NDAs aregenerally used when confidential information is presented or transmitted aspart of an exchange of information between two companies and one (or both)companies want to prevent this information from being made available to otherparties or the public (e.g. via a website or newspaper article). The exchangeof information can take place verbally (presentations, meetings, telephonecalls, etc.), in writing (e-mails, reports, etc.) or by other means (e.g. thehandover of a prototype can also be a transmission of confidentialinformation).

Largecompanies in particular often require an NDA even for a telephone call with employeesof another company or for a visit to the company's premises. This can makesense depending on the situation (e.g. if the visitor is given access to alaboratory in which a new technology is being developed). However, it can alsobe "superfluous" if only publicly known, non-sensitive information ismade accessible.

Your checklist

In many cases, NDAs are signed "pro forma" and have no relevant scope of application for either party. However, a missing NDA can also destroy a business idea or a signed NDA can prevent a business idea. To prevent this from happening, a company must keep the basic idea of NDAs in mind and carefully analyze the specific business situation.

1. Is there any information to be kept secret?

Before anNDA is signed or you consider proposing an NDA to a business partner, youshould ask yourself whether there is any information to be kept secret. AnNDA only makes sense in this case.

‍2. Secret information of the business partner‍

If theproposal for an NDA comes from the (potential) business partner, it can beassumed that the business partner wishes to share information that must be keptsecret.

Before signingthe NDA, it is therefore important to consider what this information might beand whether your company will be able to keep it secret (this includesinstructing employees to delete documents, etc.).

If this isgenerally possible, we recommend using a "recipient-friendly"template. The design of an NDA is very variable - this leeway can and should beused.

A specifiedNDA must be checked for the following points in particular:

• Shouldall information be kept secret or only marked information? A markingobligation is better for the recipient.
• The NDA should be as limited as possible (e.g. to a specific project, a specificcollaboration) and as short as possible (e.g. 3 or 6 months).
• Do additional declarations have to be obtained from employees? If possible, thisshould be avoided due to the additional work involved.
• Place of jurisdiction at your own registered office (or at least the defendant'sregistered office). This ensures that "if necessary" no foreignlawyer has to be involved in the court proceedings sought by the other party (thisprinciple does not only apply to NDAs).‍

3. Ownsecret information

‍An NDA mustbe proposed on one's own initiative if a patentable development has been madein the company but the patent has not yet been applied for and the informationused for the future patent application must be shared with someone. Thedisclosure of information may otherwise be a prior publication prejudicial tonovelty and thus prevent patenting. This is one of the most important cases inwhich an NDA is mandatory.

An NDA isalso very important if know-how from the company that is not protected bypatent law needs to be shared with third parties. In the case ofnon-proprietary know-how, it is generally advisable not to share this withthird parties as far as possible. If it is not otherwise possible (e.g. becauseparts of production are outsourced), then the know-how must be secured by meansof a very well formulated NDA.

If youregularly need to protect your own confidential information, your companyshould have its own NDA template and use it whenever possible.

In an NDAfor the protection of your company's information, the following points inparticular must be taken into account:

• The NDA must be assigned correctly (i.e. to the right project, the right collaboration).
• The contractual partner must be correct, i.e. sign with legal validity (experiencehas shown that this is often overlooked in practice).
• The application time must be long enough to cover the entire transmission ofinformation.
• The obligation to maintain secrecy must last as long as it is in the interests ofthe company (in the case of planned patent applications at least until thepatent application is filed, in the case of secret know-how as long aspossible, ideally indefinitely).
• Factual instructions should be included (e.g. where the information may be storedelectronically; who may receive the information in the business partner'scompany at all).‍

4. Mutual NDA

‍An NDA canof course also relate to information to be kept secret by both businesspartners, which is usually marked as "mutual".

Such NDAsshould include a fair interim solution for both sides. Depending on theinformation to be protected, you can use the corresponding checklist above.

5. Noteverything is covered

‍The frequently encountered opinion "we have an NDA and therefore nothing is aproblem" is wrong in many situations and can have unintended consequences.An NDA is there to secure the exchange of information between two parties. Itonly refers to disclosing existing information to each other and avoiding therisk of it becoming accessible to other people. However, an NDA does not(typically) contain any rules on what happens with new developments. An NDA istherefore not sufficient for development collaborations. As the boundarybetween the exchange of information and the emergence of new ideas is oftengradual, it is essential that companies keep a close eye on how an exchangedevelops and conclude a cooperation agreement in good time.

In thedevelopment phase of products and processes, it should also be borne in mindthat it may even be disadvantageous to obtain information from an opposingparty that is active in a very similar field. If the other party has come tothe same conclusions as your company, a dispute may arise as to whether oneparty has taken over the findings from the other (and would therefore not beentitled to patent them).

‍6. Cautionwith IP clauses

‍Caution isparticularly advised when NDAs contain atypical clauses. For example, some NDAscontain performance obligations for the parties (e.g. delivery of prototypes bya certain date). Extensive "IP clauses" can also be very tricky.These are clauses that regulate the intellectual property rights("IP" for short) between the parties. Typically, an NDA stipulatesthat IP remains with the original owner - if a clause provides otherwise: watchout!

7. Practicaltip 1: Negotiate

‍It shouldbe noted that many larger companies present NDAs as "non-amendable",similar to general terms and conditions. This is not the case. If a clause doesnot suit your company, it is perfectly possible to negotiate a change. Freedomof contract applies. This means that, in principle, an NDA does not have to besigned, but the business partner is not obliged to hold talks or present theirdocuments.

8. Practical tip 2: also ensure factual protection

‍The maingoal with your own secret information is that your information remains secret.Do not rely on NDAs, but take factual measures (in particular data security andonly very limited sharing of important information) to ensure that secretinformation really remains secret.