The protection of trade secrets differs from other forms of intellectual property protection (such as patents or copyrights), because multiple companies may lawfully hold the same information as a trade secret. For example, competitors may share the same customers, meaning customer data can, in principle, be a trade secret for both companies. A company must primarily ensure the protection of its own critical trade secrets, as the law does not grant exclusive rights to them.

Legally, a trade secret refers to information that i) is not generally known, ii) has economic value, and iii) is subject to reasonable measures taken by its holder to keep it secret. This definition is based on trade secret legislation, which in turn is derived from the EU Trade Secrets Directive. An NDA is particularly relevant for point (iii) of this definition, through contractual measures, a company actively protects its valuable trade secrets.

It is also possible to agree that information other than trade secrets must be kept confidential. However, legal remedies under trade secret law do not apply to such information. Mandatory legislation may also impose limitations, for example if an NDA restricts an employee’s ability to use their professional skills.

Startups often work with new ideas and technologies. If this information falls into the wrong hands, the company’s competitive advantage can disappear instantly. An NDA is used to prepare for the undesirable situation where information is leaked to the public or competitors.In addition to contractual remedies, a company may rely on legal actions under trade secret law against misuse.

NDAs are used for different purposes in different situations. Most commonly, NDAs or confidentiality clauses are included in customer agreements and employment contracts. These typically protect operational trade secrets such as customer data, financial information, and personal data of employees.

Startups generally understand that key trade secrets must be protected, but a common pitfall is that the NDA is not properly tailored. It may be copied from elsewhere without careful legal review. As a result, for example, the jurisdiction clause may be inappropriate, or the definition of confidential information or the purpose of the NDA may be too broad or too narrow.

Although NDAs often contain similar clauses, they should always be tailored to the specific use case. For example, an NDA used in a request for proposal should not be used for an M&A transaction. Similarly, a technology startup requires a different NDA for product development than a marketing company does for client relationships.

It is therefore advisable to draft NDAs specifically to match your business needs. Our advisors can assist you in drafting appropriate NDAs.

If important trade secrets are disclosed, the value of a business can collapse instantly. Especially for startups, where the business is still in its early stages, trade secrets are often the company’s most important, and sometimes only asset.

In business, an NDA is not only a contract but also a statement of shared rules between the parties. Trust creates a strong foundation for long-term business relationships.

However, NDAs are also essential outside customer and supplier relationships. In technology development, for example, it is crucial to carefully handle confidential information and ensure that binding NDAs are in place with employees and potential partners before development work begins.

An NDA is only the starting point in technology development, so a separate development agreement should also be agreed upon as early as possible. This helps avoid later disputes, for example over ownership of intellectual property rights.

An NDA often has a preventive effect. The recipient of information handles it much more carefully when they know that confidentiality has been agreed upon and that breaches may lead to legal consequences.

The unlawful acquisition, use, or disclosure of trade secrets is prohibited by law. NDAs can also set contractual penalties, such as liquidated damages.

However, it is important to remember that the existence of a contract or penalties alone is not enoughthe company must be prepared to enforce its rights in court or arbitration if necessary. This is particularly important when the recipient is located in another country.

NDAs are only one part of a company’s trade secret protection strategy. It is equally important to ensure that information is protected physically and digitally, as well as to maintain proper handling practices. Even the most carefully drafted NDA provides no protection if the company itself carelessly discloses information publicly.

Operational measures and cybersecurity practices can also limit the damage caused by potential breaches by ensuring that an attacker does not gain access to all information at once.