NDA: What to Watch Out for When Signing a Non-Disclosure Agreement

Quick Overview

An NDA will only protect you if it clearly specifies what information is confidential, who is authorized to handle it, how long the confidentiality period lasts, and what happens in the event of a breach. The main risks include overly general wording, unreasonably high contractual penalties, missing exceptions to the confidentiality obligation, or the use of a generic template without adapting it to the specific situation. If an NDA is intended to protect trade secrets, know-how, client databases, or technological processes, it’s worth having it custom-drafted.

Not sure if your NDA actually protects you? Let us draft or review your non-disclosure agreement before you sign it. This will help you avoid a situation where the agreement exists on paper but is difficult to enforce in practice.

Or you may be on the other side, committing to keep something confidential. But are you unsure whether the document might harm you in the future? You can find many downloadable NDA templates online, but only a well-drafted agreement in compliance with the new Civil Code (NOZ) will ensure your effective protection.

In this blog post, we’ve outlined the key areas that often cause problems and, in extreme cases, can even render an NDA unenforceable. And that is certainly not a desirable situation. In a knowledge-based economy, exclusive know-how is worth its weight in gold. It is therefore certainly worth investing time and energy into protecting it and entering into a non-disclosure agreement that will truly and effectively safeguard your interests.

What Rules Govern NDAs

A non-disclosure agreement is not regulated as a separate type of contract under Czech law. It is most commonly entered into as an unspecified contract under the Civil Code. In practice, however, it may also touch on other areas—such as the protection of trade secrets, unfair competition, labor relations, or the protection of personal data under the GDPR.

If an NDA protects trade secrets, it is important that the information not be generally available, that it have actual value, and that the owner has taken reasonable steps to keep it confidential. Simply labeling information as “confidential” does not automatically mean that it constitutes a trade secret. The agreement should clearly describe exactly what is being protected and how the other party is to handle it.

In practice, NDAs often come into play during negotiations with investors, software development, the transfer of databases, collaboration with external parties, franchising, or the sale of a company. However, in each of these situations, the agreement protects slightly different information, and therefore it should not be drafted as a one-size-fits-all document.

When Can an NDA Not Be Enforced?

Ideally , an NDA should define as precisely as possible 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 learns during the term of this agreement.”

With such general definitions, there is a real risk that the NDA will become nothing more than a scrap of paper, because it is unclear what the agreement actually protects. The NDA is vague and therefore difficult to enforce. It is simply impossible to protect everything, everyone, and under all circumstances. Properly , a non-disclosure agreement should cover only those facts and pieces of information that are not publicly available and for which there is a clear interest in protecting them.

The definition of confidential information is often the most common weakness of an NDA. If it is too broad, the agreement may be vague. If, on the other hand, it is too narrow, it may fail to protect the most valuable information. When reviewing an NDA, we therefore always assess not only the text of the agreement but also what information is actually intended to be protected.

From our practice: A client sent us an NDA that protected “all information obtained in connection with the collaboration.” At first glance, it seemed strict, but in reality, it was unclear whether it applied to a price quote, technical documentation, business strategy, or routine email communication. We therefore recommended dividing the confidential information into categories and adding specific examples. The agreement then became clearer for both parties and, at the same time, more enforceable.

Do you want to be sure that your NDA isn’t just a formality? Have a lawyer draft it for you.

How Should Confidentiality Be Maintained?

A good non-disclosure agreement should certainly specify how confidential information is to be protected, the group of people to whom such information may be disclosed, and what does not constitute a breach of confidentiality.

Typically, this includes the obligation of the party bound by confidentiality not to disclose, make available, or otherwise allow third parties access to confidential information. In the case of a business entity or other legal person, it is also advisable to specify the group of employees or associates to whom confidential information may be disclosed and to exclude all others outside this group. This helps prevent uncontrolled information leaks within the company through contractual means.

Our experience shows that, for companies, it is often insufficient to bind only the company itself to confidentiality. Confidential information commonly reaches employees, accountants, IT administrators, external consultants, or members of management. An NDA should therefore clearly specify to whom the information may be disclosed, whether these individuals must also be bound by a confidentiality agreement, and who is liable for any leak.

An example of the disclosure of confidential information that is not usually considered a breach of confidentiality is the disclosure of such information to government authorities (e.g., the tax office, the police). This, of course, applies only if the party is required by law to disclose the information.

Duration of Confidentiality

A well-drafted NDA should clearly define the duration of the confidentiality obligation. In practice, an indefinite obligation may be conceivable for certain types of information, but for many others, an indefinite obligation will not be feasible.

It is therefore necessary to carefully consider the nature of all confidential information and distinguish between information for which “perpetual” confidentiality can be required and information for which a specific time limit is set, after which the confidentiality obligation expires.

Penalties for Breach of Confidentiality

A confidentiality agreement that is truly intended to provide effective protection must include penalties for breaches of confidentiality, typically a contractual penalty. Otherwise, there is a risk that the confidentiality agreement will become a toothless piece of paper. In principle, it is possible to consider a contractual penalty for each individual instance of a breach. The penalty should be proportionate to the nature of the confidential information, as a disproportionately high contractual penalty will be difficult to enforce. A contractual penalty should also not preclude any compensation for damages that the party protecting the information may suffer as a result of its disclosure.

Other forms of contract termination, such as rescission of the confidentiality agreement or termination of the contract, will be of little use to you, since your know-how is already in the hands of the other party. The same applies in reverse for those who have agreed to maintain confidentiality.

Not sure how high to set the contractual penalty in your NDA? We’ll help you choose an amount that reflects the value of the protected information without seeming disproportionate. After all, an NDA isn’t just about stipulating the highest possible penalty, but about setting it in a way that will hold up in the event of a dispute.

Checklist: What a Good NDA Should Include

Before signing a non-disclosure agreement, be sure to check the following points in particular:

• Precise definition of confidential information: The agreement should specify whether it protects trade secrets, technical documentation, client databases, pricing, business strategy, source codes, or other know-how.
• Scope of Persons with Access to Information: The NDA should specify whether the information may be disclosed to employees, consultants, accountants, investors, or other collaborators.
• Handling of information: For sensitive data, it may be appropriate to address encrypted communication, secure storage, a prohibition on copying, or an obligation to return or destroy documents.
• Exceptions to confidentiality: A situation in which a party is required to disclose information to a court, the police, the tax authority, or another public authority generally does not constitute a breach of the NDA.
• Duration of Confidentiality: Some information should be protected long-term, while other information should be protected only for a limited period.
• Penalties for Breach: The contractual penalty should be sufficiently incentivizing, yet reasonable.
• Damages: An NDA should not unnecessarily preclude the right to claim damages resulting from a breach of confidentiality.

Handling of Confidential Know-How and Other Matters

A truly well-thought-out NDA also addresses a number of other details. Typically, these include the method of handling confidential information (encrypted communication, use of specialized software for data transfer), as well as a range of other matters specific to the given relationship.

A generic NDA template may suffice for a very simple situation, but it can be risky when dealing with trade secrets, technological know-how, client databases, collaboration with external parties, or negotiations with investors. Every relationship involves different information, varying degrees of sensitivity, and different practical consequences of a breach of confidentiality.

We can draft a customized NDA for you or review a document sent to you by the other party. We’ll focus on defining confidential information, penalties, the duration of the confidentiality agreement, exceptions, and risk provisions that could limit you in the future.

Summary

A good NDA must precisely define what information it protects, who may have access to it, how it is to be handled, how long the confidentiality period lasts, and what the consequences of a breach will be. The greatest risks include overly general wording, missing exceptions, disproportionate contractual penalties, and the use of a generic template without adapting it to the specific situation. If an NDA protects trade secrets, know-how, databases, technical documentation, or strategic information, it is worth having it drafted or reviewed by an attorney. A poorly written agreement may appear strict, but in reality, it will be difficult to enforce.