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Discover the essentials of Non-Disclosure Agreements (NDAs): how they function, when to use them, key legal considerations in Germany, and practical tips for protecting sensitive data.
Non-disclosure agreements (NDAs), also known as confidentiality agreements or confidentiality disclosure agreements, are legally binding contracts designed to establish confidentiality rights and obligations between the contractual parties. To protect sensitive data, these agreements are critical in various scenarios, such as onboarding new employees or during the initiation of business partnerships.
NDAs specifically safeguard an individual’s or organization’s information privacy, distinguishing them from other business contracts, such as service or sales agreements, which primarily address the terms of service or transaction conditions.
In international comparison, NDAs are subject to diverse legal obligations. Especially with German law, there are certain aspects you need to keep in mind.
A non-disclosure agreement serves a crucial dual purpose: ensuring confidentiality and protecting sensitive information. NDAs are usually utilized to protect various types of information, from product specifications and client lists to business models and embargoed communications. By legally mandating confidentiality, NDAs prevent the unauthorized sharing of protected details with competitors or other third parties, guarding against both intentional and accidental breaches.
One of the key issues in German law is the definition of particular confidential information and the resulting confidentiality obligations. Under the current regulatory landscape, it is no longer possible to declare your know-how to be a trade secret. As is oftentimes the case with legal matters, under the new legal framework, you need to specify the subject very precisely. Various approaches to solving the problem have been established in practice:
Since the introduction of the Act on the Protection of Trade Secrets (GTSA) in 2019, which implements Directive (EU) 2016/943 (TSD) it is possible to refer to the legal definition of “trade secret” in Sec. 2 No. 1 GTSA (in German: Gesetz zum Schutz von Geschäftsgeheimnissen). According to the section, it needs to be
With this approach, you need to be cautious, given the requirement of a “legitimate interest”. If you refer to the legal definition it should be made explicit that trade secrets are nevertheless protected if this requirement is not given.
Because this solution is still very broad, to minimize the risk of protection gaps, it is advisable to combine it with a predefined catalogue of:
Often times, a combination of those elements is used to ensure comprehensive protection. Either way, there must be a need for confidentiality, which means you need to have a legitimate business interest in keeping the information confidential.
Furthermore, this solution could fall under the German regulations of general terms and conditions (GT&Cs) - in Germany also known as “Allgemeine Geschäftsbedingungen” or “AGB”.
But if you use a standardized NDA clause for your contracts, you need to ensure its legal soundness. For instance, if your definition of a trade secret is too broad and general, it could violate the transparency requirements of Sec. 307 (1) sentence 2 of the BGB. These “catch-all” clauses constitute an unreasonable disadvantage for the other party and are therefore invalid.
NDAs are crucial when sensitive information needs to be shared inside and outside your organization, whether with potential investors, new employees, or during strategic partnerships. Below are key situations where an NDA is vital:
Additionally, NDAs are instrumental when dealing with contractors, vendors, or exploring joint ventures to ensure that all shared information remains confidential.
One possibility to enforce confidentiality is to implement contractual penalties. This is especially useful because compensatory damages are very hard to prove.
In Germany, penalty clauses - which are not allowed in US or British jurisdictions - are still subject to GT&C controls, which ensure that all parties are treated fairly.
For example, the remuneration of the other contractual party and the seriousness of the breach of duty need to be taken into account. In comparison, courts in the US do not allow the idea of a contractual penalty but enable so-called “liquidated damages”. This differentiation, in advance, enables one to determine the consequences of a potential breach in terms of damages. In German law, reasonable treatment is ensured in Sec. 9 of the GeschGehG. The law allows action to be taken if the clause imposes disproportionate legal consequences on the other party.
Every NDA should comprehensively address the following elements:
While NDAs are valuable for protecting sensitive information, they have inherent limitations:
Organizations managing multiple NDAs may face challenges without standardized language. Developing a standard, adaptable NDA through expert consultation can mitigate these issues, ensuring that the confidentiality agreement meets the organization's needs effectively.
GAIA streamlines the creation, signing, and management of Non-Disclosure Agreements (NDAs), providing an all-in-one solution that enhances efficiency and oversight. With GAIA, you can easily create NDAs directly on the platform without the need for traditional Word or Google Sheets formatting. Once created, NDAs can be electronically signed by all parties using GAIA's online singing. This process not only saves time but also ensures all documents are securely managed and readily accessible, giving you a comprehensive view of all active agreements. GAIA simplifies these processes, making it an essential tool for legal document management.
Written by
Simona Sopova
on
March 25, 2025