A Non-Disclosure Agreement, or NDAs, is a mutual contract of wills between two or more parties intending to share confidential information, either among themselves or from one party to another. They guarantee that such information remains known only to the involved parties or to third parties previously authorized by the disclosing party.
Its significance is such that no discussion regarding the signing of a potential contract to govern a transaction should occur without first signing a non-disclosure agreement. This ensures the protection of IP, fosters collaboration between companies, and establishes a trust relationship among all negotiating parties. Examples of situations where NDAs are recommended include the development of business partnerships, employee hiring, creation of new products or technologies, negotiation of mergers or acquisitions, and so forth.
Non-disclosure Agreements are also known as CDAs, “Confidential Disclosure Agreement”.
The parties to a non-disclosure agreement are a disclosing party and a receiving party. It is important to note that depending on the situation, Party A in an NDA can be either the disclosing party or the receiving party, and vice versa for Party B. This scenario often arises in business partnerships where both parties have confidential information to share. However, particularly in service provision, when only one party shares confidential information with another, Party A is solely the disclosing party, and Party B is the receiving party. In this instance, the disclosing party agrees to share confidential information with the receiving party under specific conditions, while the receiving party agrees to receive and protect the confidential information, preventing its disclosure without prior authorization.
Incidentally, it is generally straightforward to conceptualize the disclosing party, but this may not be the case with the receiving party, as it could encompass branches, companies within the same economic group, specific employees, third parties acting on their behalf, and so forth.
Now, let us analyze the main clauses of a non-disclosure agreement.
DEFINITION OF CONFIDENTIAL INFORMATION
Defining the concept of confidential information is crucial to ensure that genuinely sensitive information is not trivialized, although some companies may choose to classify any and all information related to a transaction as confidential.
TERM
It is imperative for the NDA to specify the period during which the confidentiality obligation must be upheld.
The parties must determine a reasonable timeframe during which the confidentiality of the information must be guaranteed to prevent any further harm or loss to the disclosing party after this period has elapsed.
It is entirely possible to stipulate a clause with a different term. For instance, Term X could commence from the occurrence of the last of the following situations 1. The termination of the business; 2. The date of the final court decision (without the possibility of appeal) involving materials/documents originating from the business; 3. The closure, without the possibility of appeal or judicial review, of the administrative procedure involving materials/documents originating from the business; or 4. The expiration of the patent’s terms.
NDAs with clauses valid for an indefinite period are not uncommon. However, the majority of court precedents in Brazil have opposed this notion, asserting that imposing such a burden on the receiving party without a specific and agreed upon deadline is unreasonable. Therefore, it is highly advisable for the parties to agree upon a specific and reasonable timeframe for maintaining the confidentiality of the shared information.
EXCEPTIONS TO CONFIDENTIALITY
This is another clause that warrants the attention of the contracting parties, as the disclosure of information may occur without violating the confidentiality obligation.
Therefore, it is advisable to include exceptions to protect the receiving party from inadvertently breaching the terms of the NDA without disclosing any confidential information. What follows are some examples of such situations:
1. Written consent – when the disclosing party issues written consent to the receiving party, there is no violation of NDA terms. In this scenario, consent should imperatively be written, not verbal, so as to prevent any dispute regarding its validity.
2. Information already in the public domain – when the confidential information is already obtained by third parties, the receiving party bears no liability. It is immaterial to the receiving party whether the third party obtained the information legitimately or through a leak, as the third party holds responsibility. Obviously, should there be a leak during business proceedings between the parties, the disclosing party could request the receiving party to treat the information with equal confidentiality. Additionally, copyrighted works enter the public domain after 70 years, starting from the first day of January following the author's death.
3. Information already in the possession of the receiving party before signing the NDA – if the confidential information is already in the possession of the receiving party before signing the NDA, and this can be verified, sharing this information does not constitute a breach of the confidentiality obligation.
4. Information shared with authorized employees – it is crucial to have this exception to the company's confidentiality obligation, allowing authorized employees access to such confidential information.
5. Information shared for commercial purposes – it is equally crucial that the receiving party obtains, from the disclosing party, the exact limit of what can be shared or not, if necessary for the purposes of commercial expansion.
6. Internally developed information – any information internally developed by the receiving party without the use or disclosure of confidential information protected in the NDA must also be excluded from the confidentiality obligation.
7. Legal obligation – when the receiving party needs to share confidential information due to a legal, court, or administrative order, the information disclosed must be limited to what is strictly required by the authority and, whenever feasible, the disclosing party must be notified in advance, allowing them to take any necessary measures to prevent disclosure, if possible, or to review the information to request changes beforehand.
PENALTIES
The penalty clause, as the most crucial, is often the most challenging to agree upon between parties, despite Brazilian law being explicit about civil liability (as per Article 186 of the Brazilian Civil Code) and criminal liability (as per Article 154 of the Brazilian Penal Code). Below are the most common types of penalties outlined in NDAs:
1. Fine – a agreed-upon fine must be paid by the party that breaches the NDA.
2. Compensation for material or immaterial damage and loss of profits – parties typically agree to the possibility of compensating for material or immaterial damage and loss of profits, often determined by arbitration in court in favor of the injured party, considered from the perspective of civil liability.
3. Criminal liability – violating industrial secrets as provided for in the penal code can lead to charges and indictment of the individual which has breached the confidentiality obligation, potentially even resulting in arrest.
4. Termination of the contract – parties may agree that breaching the confidentiality obligation can result in the immediate termination of the main contract between them without prejudicing other safeguard measures established in the NDA.
FINAL COMMENTS
The following types of clauses are also pertinent: those which guarantee that the NDA does not imply in the transfer of any IP or license from one party to another; clauses stipulating that, in case of uncertainty regarding the confidentiality of information, the disclosing party must be consulted beforehand; or clauses stating that the invalidity of any provision will not invalidate the remainder of the agreement, and that the contract can be signed electronically — considering that electronic signatures currently substitute physical signatures in the vast majority of cases.
