NDA - an ultimate guide

Content: 

  1. What is a non-disclosure agreement? 
  2. Purpose of an NDA
  3. Contract components
  4. The limits of an NDA 
  5. Instructions for creating an NDA  

1. what is a non-disclosure agreement? 

An NDA, short for Non Disclosure Agreement, is a non-disclosure agreement in which the parties involved agree to keep all sensitive information strictly confidential and not to disclose it. NDAs are usually agreed at the beginning of a business relationship. 

For example, a company can ask a new employee or an external freelancer to sign an NDA before signing a contract in order to protect sensitive company data. Non-disclosure agreements can also be agreed between two private individuals. 

Unlike other business contracts, the non-disclosure agreement focuses exclusively on protecting the data and intellectual property of a company or even an individual

Differentiation into two categories: 

Generally, NDAs fall into two categories, unilateral and mutual. 

Unilateral confidentiality agreement

In the case of a unilateral non-disclosure agreement, only one party to the agreement undertakes not to disclose confidential information. 

Example: A company hires a new web agency to redesign its homepage. In order to be able to give a cost estimate, the web agency wants to access confidential data. In this case, the company may require the web agency to sign an NDA that obligates the web agency to maintain silence about internal sensitive data. 

Bilateral non-disclosure agreement 

In the case of a mutual or bilateral confidentiality agreement, both parties agree to maintain confidentiality. 

Example: Two companies, a manufacturer and a supplier, cooperate in the development of a joint product. For this purpose, they give each other access to internal operating processes, etc., which can then be protected with an NDA. 

Note: A non-disclosure agreement is not a patent. The latter is a protective right for (technical) inventions. Non-disclosure agreements, on the other hand, regulate the information to be kept secret. 

2. purpose of an NDA

It often happens that non-disclosure agreements are signed merely "pro forma". Large companies in particular sometimes demand the signing of an NDA even before a telephone call. Whether this is really sensible and necessary depends on what information is being passed on. 

In some cases, however, an NDA is essential because the company must inevitably disclose confidential information to the outside world: The hiring of new employees, a collaboration with cooperation partners or the search for investors. 

Here, NDAs help to ensure the necessary protection from competitors.  

Here's what to consider: 

But before considering signing a non-disclosure agreement or suggesting its business partner do so, the company should ask itself what sensitive information exists in the first place. 

1. sign an NDA

If a potential business partner asks the company to sign a non-disclosure agreement, the company should ask itself whether it is in a position to maintain this agreement. For example, the company needs the capacity to train employees and later delete the documents etc. on the servers. 

2. propose an NDA  

The company itself should propose an NDA as soon as it concerns developments that are not yet patented. But even non-protected knowledge that is shared with third parties must be protected with a very well formulated NDA. 

Below are several situations that may require an NDA. 

Special forms of contract

Particularly in the case of the following forms of contract, it is often advisable to include a confidentiality agreement, although this may already be included in the contracts by way of a clause: 

Letter of Intent

A Letter of Intent (LOI) is a legally non-binding declaration of intent that proves that two parties are in the process of initiating a contract. There is no entitlement to the conclusion of a contract; it is a matter of expressing the seriousness of a cooperation. 

In addition to the LOI, a non-disclosure agreement is then usually requiredto commit each other to confidentiality on the contents, or even the fact that one is in negotiation at all, for example in the case of a planned acquisition. 

Cooperation agreement

In the case of planned cooperations, the cooperation agreement should only be signed after a non-disclosure agreement has been signed. A cooperation agreement regulates further points in connection with internal information and thereby supplements the NDA. 

License agreement and technology transfer agreement

Since in a license agreement the owner of an intellectual property right (e.g. patent or copyright) transfers his right to a third party, it is also strongly recommended to sign a non-disclosure agreement in advance. This is because negotiation of a license agreement can often only take place by gaining insight into sensitive information and data

Perhaps also interesting: Software license agreement - definition and content

The same applies to the technology transfer agreement, which is seen as a type of license agreement, with the difference that it involves the transfer of technical "know-how", e.g. research and development results. 

Consulting agreements and other contracts with external service providers

For all contracts with external consulting companies and individual external service providers such as freelancers or marketing agencies, a non-disclosure agreement should also be signed prior to initiating the contract. After signing, sensitive information can be disclosed and used as a basis for project/contract negotiations. 

Employment and employee contracts 

Especially in highly competitive industries, employers often require an NDA to be signed in addition to the employment contract. A corresponding clause may also already be included in the contract here.

Furthermore, confidentiality agreements are common in: 

  • Investor Talks
  • Sales contracts
  • Intended joint ventures
  • Takeover talks (M&A)
  • For new customer admissions
  • Discussions with potential new partners

3. contract components

In principle, freedom of contract applies to NDAs, as it does to other contracts under private law in Germany. This means that the contracting parties are free to define the content, but subject to the principles of good morals (§138 BGB) and good faith (§242 BGB). In addition, unilateral contracts may not unreasonably disadvantage the party obliged to remain silent. 


To be on the safe side, the following points should always be regulated in an NDA, despite contractual freedom:

  • Contracting parties 

This item includes all names of the involved persons or companies incl. address.

  • Subject of the contract 

What project is involved? Definition of all confidential information, data, papers and documents, as well as actions and statements of individual parties.

  • Designation of the confidential information 

Verbatim naming of the most important information (for example, data carriers, software, etc.) in order to have clarity in the event of a legal dispute.

  • Intended use 

For what purpose may the contracting party use the information, which data, if any, may they pass on and for what reasons? / Use of the confidential information.

  • Contractual penalty 

Every NDA should define contractual penalties in the event of a breach of confidentiality. As soon as one party is proven to have breached confidentiality, a predefined contractual penalty may then become due, regardless of whether economic damage has been incurred.

  • Damages 

In addition to the contractual penalty, it is stipulated that any damage caused by failure to observe confidentiality shall be compensated accordingly.

  • Use in the event of failure to conclude a contract 

Difficulties often only arise when the negotiations do not result in the hoped-for conclusion of the contract. If joint solutions or ideas have already emerged by then, the question arises as to who may continue to use these ideas. The NDA should therefore specify exactly which party is then entitled to these ideas, or who may use them, or whether both parties may retain rights to them and thus use them for their own concepts.

  • Validity period 

Asa rule, NDAs are concluded for an unlimited period of time. In some cases, this can lead to one party being disadvantaged. Here, a limited contract duration makes sense.

  • Severability clause 

The severability clause is particularly important in the context of a confidentiality agreement, as it stipulates that the contract retains its validity even if individual components are invalid or unlawful.

  • Regulation on the obligation to provide evidence

In the event of a breach of contract through disclosure of information to be kept secret, the burden of proof must be regulated. Normally, the burden of proof lies with the aggrieved party. Accordingly, the latter must prove that the disclosure was committed by the other party to the contract and did not occur otherwise, for example through security gaps in the e-mail servers. 

Tip: For non-disclosure agreements, it is advisable to draw up very precise regulations if possible in order to avoid any differences later on.

4. the limits of an NDA

In addition to the restrictions already mentioned by the general laws of the BGB (§138 BGB and §242 BGB), the standards of §§305ff. BGB

Not all information can be protected by contract, for example, when

  • compliance with confidentiality restricts unreasonable freedoms of a contracting party. 
  • the disclosure of the information is due to legal obligations (tax matters). 
  • the exercise of the contracting partner's profession can thereby no longer be guaranteed 
  • the secrecy corresponds to a non-competition clause

Courts may also release information covered by NDA - in this case the NDA is invalid. 

In order not to implicitly deny trust to one's business partner by submitting an NDA, it is all the more important that only information that really deserves protection is available and that the NDA is not simply concluded pro forma. Especially due to the fact that confidentiality agreements do not cover information that is already known, it is essential that the agreement is signed directly before talks begin, which - especially if it happens under pressure - can damage the relationship of trust with the potential business partner. 

Furthermore, an NDA can become obsolete, especially for young companies and start-ups, as they often lack the resources for litigation. 

In addition, the administration of several different NDAs can quickly become a burden for companies. Here, it is advisable to prepare a standardized, well-written and flexibly adaptable non-disclosure agreement. In addition, contract management software can be very helpful in maintaining an overview. 

5. instructions on how to create an NDA 

Since there is no standard system for creating a confidentiality agreement, companies must figure out how to write it themselves. The following practical tips will help you create one: 

  • keep it short - one page is often enough
  • Use clear and concise formulations 
  • Use templates from the Internet only with caution and appropriate self-research
  • If necessary, use contract management systems to maintain an overview

A lawyer is not absolutely necessary, but there are situations in which professional advice is worthwhile in order to be on the safe side. 

In addition, well-organized contract management, for example by using software, can help to keep track of contracts, store them and automate various contract tasks, such as deadline extensions. This increases efficiency and saves time and nerves, especially when you need a quick overview. 

Disclaimer: 

The contents of this article are for information purposes only. It is not legal advice and no liability is accepted for the contents.

Sebastian Wengryn
CEO

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