NDA, and what to watch our for when entering into a confidentiality agreement

Or are you committing to keep something confidential, but you are unsure whether the document will harm you in the future? You can find many sample confidentiality agreements to download online, but only a well-drafted agreement in accordance with the new Czech Civil Code (CCC) will ensure your effective protection.

In this blog, we have outlined the essential headings that often cause problems and, in an extreme case, may even render the NDA unenforceable. And this is definitely not a desirable state of affairs. In a knowledge-based economy, exclusive know-how is worth its weight in gold. So it is certainly worth taking the time and energy to protect it and to enter into a non-disclosure agreement that will protect you effectively.

What does an NDA protect?

Done properly, an NDA should precisely define which facts, knowledge, or know-how are to be protected by the agreement. In practice, we often encounter overly broad definitions such as “all facts that the other party becomes aware of during the term of this agreement”.

With such general definitions, there is a real risk that the NDA will become just a piece of paper, because it is not clear what the agreement protects. A vague and unclear NDA is indefinite and is therefore difficult to enforce. Simply protecting everything, everyone, and under all circumstances is not possible. A confidentiality agreement should properly cover only those facts and information that are not publicly available and for which there is a clear interest in their protection.

How should confidentiality be maintained?

A good non-disclosure agreement should regulate the manner in which confidential information is protected, the circle of individuals to whom such information may be disclosed, as well as what does not constitute a breach of confidentiality.

Typically, this includes the obligation of the party bound by the agreement not to disclose, reveal, or otherwise allow third parties access to confidential information. Where a company or other legal entity is involved, it is also advisable to identify and specify the range of employees or associates to whom confidential information may be disclosed and to exclude all others outside that range. This may contractually prevent uncontrolled leakage of information within the company.

As an example of disclosure of confidential information that is usually not considered a breach of confidentiality, it is the disclosure of such information to government authorities (e.g. tax office, police, etc.). However, this is only applicable if such disclosure is required by law.

Duration of confidentiality

A well-thought-out NDA should clearly define the duration of confidentiality. For certain matters, an indefinite commitment may be conceivable in practice, but for many others, an unlimited commitment will not be practical.

It is therefore necessary to think carefully about the nature of all the confidential information and to distinguish those for which perpetual confidentiality can be demanded from those for which a limited period can be specified, after which the obligation of confidentiality expires.

Sanctions for breach of confidentiality

A confidentiality agreement that is truly intended to provide effective protection must include sanctions for breach of confidentiality, typically in the form of contractual penalities. Otherwise, the NDA risks becoming a toothless document.

In principle, it is possible to consider a contractual penalty for each individual violation. The penalty should be proportionate to the nature of the confidential information, as an excessive penalty will be difficult to enforce. The contractual penalty should also not exclude any compensation for damages suffered by the party protecting the information as a result of the disclosure.

Other forms of termination, such as withdrawal from the confidentiality agreement or termination of the contract, will not be of much use to you, as your know-how is already with the counterparty. The same applies vice versa for those who have committed to confidentiality.

Handling confidential know-how and other facts

A really well-thought-out NDA also takes into account a variety of other details. Typically, this includes the handling of confidential information (encrypted communications, use of specialized software for data transfer) as well as other specific circumstances that are unique to the particular relationship.

To draft a confidentiality agreement tailored to your case, don’t rely on templates (not even current ones from 2017 or 2018), but have it drafted or reviewed by us. Only such a document will truly protect you.