NDA - from needless to absolutely necessary

Anina Groh
Anina Groh

"Non Disclosure Agreements (NDAs) have become an indispensable part of everyday business life. In which cases does it make sense to sign an NDA?

In many cases, NDAs are signed "pro forma" and have no relevant scope for the two parties. 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 in mind the basic idea of NDA and carefully analyze the specific business situations.

Basic idea

NDAs usually come into play when secret information is presented or transmitted as part of an information exchange between two companies, and in the process one (or both) of the companies wants to prevent this information from being made available to further parties or the public (e.g. via a website or newspaper article). The exchange of information can take place orally (presentations, meetings, telephone calls, etc.), in writing (e-mails, reports, etc.) or otherwise (e.g., the handover of a prototype can also be a transmission of confidential information).

Large companies in particular often require an NDA even for a telephone call with employees of another company or for a visit to the company's premises. This can make sense depending on the situation (e.g. if the visitor is given insight into a laboratory where a new technology is being developed). However, it can also be "superfluous" if only publicly already known, non-sensitive information is made available.

First question: What is the information to be kept secret?

Before signing an NDA or considering proposing an NDA to a business partner, you should ask yourself whether there is information to be kept secret and, if so, what that information is.
If the proposal of an NDA comes from the (potential) business partner, it can be assumed that the business partner wants to share information that needs to be kept secret. Before signing, you must therefore consider what this information might be and whether you will be able to keep it secret (this includes instructing employees to delete documents from servers).
On your own initiative, it is mandatory to propose an NDA if you have made a patentable development but the patent is not yet pending. Otherwise, the disclosure of information may be a prior publication detrimental to novelty and thus preclude patenting. This is one of the most important cases where an NDA is mandatory.

Furthermore, an NDA is very important if you have to share non-patented know-how from your company with third parties. In the case of non-protected know-how, it is generally recommended not to share this with third parties as far as possible. If this is not possible in any other way (e.g. because parts of the production are outsourced), then it is mandatory to secure the know-how via a very well formulated NDA.

Of course, an NDA can also concern information to be kept secret by both parties, which is usually marked with "mutual".

Other aspects

Once this basic question has been clarified, you can consider whether the conditions of the NDA are suitable for your own company or which conditions you want to propose to the other party. It should be noted that many (especially larger) companies present NDAs similar to general terms and conditions as "not changeable". This is not the case. If a clause does not fit your company, you can certainly negotiate a change.

The most important aspects you should at least check are the following: Is there a document marking requirement (may or may not make sense)? Is there a time limit on the exchange of information (makes sense in the vast majority of cases)? What is the duration of the confidentiality obligation (as long as possible or very short, depending on the interest)?

It can be tricky that NDAs can also contain atypical clauses. In some cases, the NDA also contains performance obligations of the parties (e.g., handover of prototypes by a certain date). Extensive "IP clauses" can be very tricky. These are clauses that regulate the intellectual property rights ("IP" for short) between the parties. Typically, an NDA states that IP will remain with the original owner

What is the purpose of the NDA and at what point is an NDA no longer sufficient?

The frequently encountered opinion "we have an NDA and therefore nothing is a problem" is wrong in many situations and can have unintended consequences.

An NDA is there to secure the exchange of information between two parties. It only refers to disclosing existing information to each other without the risk of it becoming available to other people.

However, an NDA (typically) does not contain any rules about what happens with new developments. An NDA is therefore not sufficient for development collaborations. Since the line between information exchange and the emergence of new ideas is often gradual, it is imperative that companies closely monitor how an exchange develops and enter into a collaboration agreement in a timely manner.

In the development phase of products and processes, it is also important to consider that it may even be rather disadvantageous to receive information from a counterparty that is active in a very similar field. If the other side comes to the same conclusions as you, there may be a dispute as to whether one side has taken over the conclusions from the other (and thus would not be entitled to patent them).

Final remark

Freedom of contract applies. I.e. in principle you do not have to sign an NDA, however, the business partner is then also not obliged to hold discussions with you or to present his documents.

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