Non-Disclosure Agreement (NDA)

Especially in the B2B area, i.e. in the case of transactions between two or more companies, information, data and documents requiring confidentiality are often exchanged in the context of business negotiations. Therefore, a so-called non-disclosure agreement is often made before the start of negotiations. The following is a brief discussion of what is meant by a non-disclosure agreement, what the meaning and purpose of such an agreement is, and what points are typically regulated therein.

Table of contents

• What is a non-disclosure agreement?
• What are the typical points of a non-disclosure agreement?
• How do contractual penalties and damages differ from each other?
• For what purpose is a non-disclosure agreement made?

What is a non-disclosure agreement?

A non-disclosure agreement (also known as a confidentiality agreement or non-disclosure agreement, or NDA for short) is a contract in which contractual parties usually agree to not disclose confidential information and data to third parties. In the B2B area, the non-disclosure agreement serves in particular to protect company-relevant business and trade secrets and is intended to prevent third parties – for example possible competitors – from gaining possession of (competitively) sensitive data, which could cause damage to at least one of the contracting parties.

What are the typical points of a non-disclosure agreement?

Non-disclosure agreements can be designed differently depending on the will of the parties. They typically contain the following points:

• The contracting parties who undertake to maintain confidentiality;
• Subject matter of the agreement (what do the parties agree to keep secret);
• Duration of the (mutual) confidentiality obligation;
• Consequences, in the event of a breach by one of the parties of the confidentiality obligation;
• Jurisdiction and choice of law clause in the event of disputes arising from the agreement.

Information that is already known to the public or must be disclosed by law is not typically the subject of a non-disclosure agreement.

How do contractual penalties and damages differ from each other?

In non-disclosure agreements, a so-called “contractual penalty” is often provided as a consequence of a breach of the confidentiality obligation. This is intended to effectively safeguard the confidentiality obligation (especially since violations of this are not reversible). The contractual penalty is a flat-rate amount of damages contractually determined in advance, which must be paid to the other contractual party in the event of a breach of the confidentiality agreement, without the latter having to prove any specific damage. The amount of the penalty is already specified in advance in the non-disclosure agreement, but in the event of a dispute it can be reviewed by the court for its appropriateness and ultimately reduced (“judicial right of reduction”). Even without an agreement on a contractual penalty, the injured party is entitled to compensation. In these cases, the injured party must also prove the actual occurrence of damage and/or the amount of the damage (“the injured party has the burden of proof”). This is often difficult in practice and can involve a lengthy process.

For what purpose is a non-disclosure agreement made?

In the B2B area, non-disclosure agreements serve above all to protect company-relevant business and trade secrets; in particular, competition-sensitive data should not come into the possession of competitors. Non-disclosure agreements also apply in other areas, for example to safeguard trade secrets within the framework of an employment relationship or service relationship; employees of a company often undertake to maintain secrecy about internal know-how and confidential information that becomes known to them within the framework of their activity in the company. Suppliers or external consultants can also be bound by the use of confidentiality declarations to maintain trade secrets and to protect sensitive information. 

Legal advice on the confidentiality agreement

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Please note: The above explanations are not exhaustive. They are only for initial information. They do not replace in-depth advice. We would be happy to help you with this.