In a previous article we approached the content and value of business confidentiality. We have found and confirmed the value of confidential information – that is, that which falls under the trade secret. We also found and confirmed the competitive advantage that the company maintains because of the specific information. We were also given the opportunity to approach the, for this reason, multi-level legislative (civil and criminal) protection of business confidentiality. A protection that, especially for employees, is partially covered by the obligation of confidentiality – in the context of their ancillary obligations . The confidentiality agreement (:NDA) obviously comes to strengthen, in any case, the protection of business secrecy.
The expansion of the protection of business secrecy
The protection provided by the legislator to business confidentiality is, as mentioned above, multi-layered . However, it turns out, not infrequently, to be insufficient and limited. In this regard, the need for further specialization of confidential information is presented. Also, the expansion of the protection of those and of business secrecy in general.
This can only be achieved through confidentiality agreements. These contracts have become more widely known, globally – already in our country, with the abbreviation NDA (:Non Disclosure Agreement). They aim is exactly that: the broader protection of confidential information, which, among others, is disclosed in the context of commercial transactions, contracts, partnerships and/or, most commonly, employment contracts.
Legislative Basis
The confidentiality agreement does not constitute a named contract, i.e. its individual parameters are not regulated by a specific legislative provision. However, for a long time now, jurisprudence has accepted the validity of its conclusion as well as the production of legal results and consequences from it ( ind .: 1370/2019 AP 1369/2919 Supreme Court, 14322/2019 Multimember Court of First Instance of Thessaloniki, 1219/2017 Supreme Court, 5110/2011 Multimember Court of First Instance of Athens) .
The confidentiality agreement is permitted under the freedom of contract.
Let us recall here that the freedom of contracts is broken down into the freedom to enter into or not enter into a contract, to choose the contracting party and to determine its content. It has a constitutional basis, as it is enshrined as an individual right in article 5 §1 of the Constitution (4/1998 Plenary Session of the Supreme Court). It is also based on the provisions of Article 361 of the Civil Code – as an expression of the constitutionally guaranteed economic freedom.
Definition and context
But what are confidentiality agreements? There does not seem to exist a unanimously accepted definition.
We could define the confidentiality agreement as the unilateral statement (or agreement) to not make specific confidential information available to any third party and for any reason other than those agreed.
The one who undertakes the obligation of confidentiality also undertakes further, more specific, obligations. Indicative: not to disclose, reproduce or use for their own benefit (or for the benefit of a third party) confidential information, to which they gain access due to the cooperation with their counterparty. Furthermore, to take appropriate measures in order to preserve the confidentiality of the specific information.
The undertaking of unilateral or mutual confidentiality depends on whether the disclosure of confidential information is, respectively, unilateral or mutual. Unilateral disclosure takes place in case of, e.g., a business acquisition in the context of due diligence or in the context of the employment contract. Mutual disclosure takes place, indicatively, in the event of a merger of companies and in the context of carrying out a, in this case mutual, due diligence.
The confidentiality agreement may take the form of a stand-alone contract. It may, however, be included as a relevant clause or section in the main partnership agreement between the parties.
The confidentiality agreement is concluded, as a rule, at the stage of negotiations ( ind .: 1370/2019 Supreme Court, 1219/2017 Supreme Court, 5110/2011 Multimember Court of First Instance of Athens) or at the same time as the main contract.
Pre-formulated terms or tailor-made contracts?
As there is, in accordance with what has already been mentioned, no specific legislative regulation for confidentiality agreements, it is logical that no minimum content should be derived from the law.
It is known that there are widely “circulating” models of confidentiality agreements with identical, to a significant extent, wording. Even freely available online. We even see these more or less identical, in terms of content, examples being used for all kinds of cases. Are they safe to use?
One who chooses to enforce a confidentiality agreement looks to its value and to the protection of themselves and their business.
It is (more than) obvious, however, that pre -formulated terms or, even more so, pre -formulated confidentiality agreements cannot provide the best possible, nor the minimum tolerable protection. It is recommended, on the contrary, (as, moreover, in any case of drawing up a contract) to conclude a “tailor-made” contract, which will meet the specific needs of the individuals and legal entities involved.
The Content of the Confidentiality Agreement
Regardless of any special arrangements, certain terms cannot be omitted from the confidentiality agreement. Indicative:
(a) The categories of confidential information
The non-disclosure agreement must specify explicitly, and as fully as possible, the specific confidential information (or categories thereof), which is disclosed (or may be disclosed) in the context of the negotiations and/or performance of the main contract (e.g. commercial cooperation) of the contracting parties.
In this way, the obligation to maintain confidentiality – specific, in fact, information, which rests on the obligor – is made concrete.
However, it is noted that it is not possible to identify as confidential that information that which is either not of a confidential nature or is public or easily accessible to an unspecified number of persons.
(b) The purpose
In the confidentiality agreement it is necessary to specify the purpose for which the receiver of the confidential information becomes a aware of specific confidential information (concerning their counterparty or a third party). In this way, the framework within which the specific contracting party is entitled to act, exclusively, is determined.
(c) The due actions and measures to preserve confidentiality
It is also important to refer to the permissible (and, correspondingly, non-permissible) actions in which the obligor is entitled (or, correspondingly, prohibited) to perform the duty of confidentiality – in relation to the confidential information. Indicative: possibility, possibly, of communicating the confidential information to third parties and, if so, who and under what conditions. The context, also, of their potential use or possible reproduction. Accordingly, and with regard to prohibited actions (e.g. prohibition of using confidential information for one’s own benefit or making it public).
It is also desirable to specify, respectively, the measures to be taken by the obligor to ensure confidentiality and protect privacy.
(d) Duration
Determining the duration of the confidentiality agreement or related clause proves to be of major importance.
Negotiations between the contracting parties may not be successful. It is, accordingly, possible to terminate, prematurely – for any reason, the concluded contract. Will the obligation of confidentiality be extinguished or not in these cases? It is imperative, therefore, that the duration of the confidentiality obligation be agreed upon, which may extend beyond the specific time limits.
(e) Applicable Law and Jurisdiction of Courts
An important term in the confidentiality agreement is also that of the applicable law and the jurisdiction of the courts. And this is because when the contracting parties are active and based in the same city, things are simple. But what will happen when a Greek company contracts with a company based in Great Britain or the USA? In those courts, will one seek compensation for damages they may have suffered? In these and similar cases, the determination of the applicable law and the competent courts, in the event of an abnormal development of the contract, is considered to be of major importance.
(f) The consequences of the (possible) violation
Of particular importance is, of course, the prediction of the consequences of a possible violation of the obligations undertaken (as these consequences are analyzed in particular – immediately below). It is indeed noteworthy that these consequences are exactly what the contracting parties are aiming for when they decide to enter into the confidentiality agreement.
Coverage Intended; Determination Of Damages
As already mentioned, the confidentiality of the business is protected by law. However, the parties resort to the conclusion of confidentiality agreements for reasons of optimal and more complete protection. In any case, however, the specific contracts are a means of proving the obligations of both parties. Especially because, through them, it is proven what confidential information the parties have shared.
However, the problem becomes particularly complicated when it comes to determining the damage suffered by the contracting party due to the breach of the confidentiality obligation. The matter, then, presents difficulties, especially evidential ones. Through the confidentiality agreement it is sought to surpass these difficulties, as it is possible to agree in advance: (a) a specific method of calculating the (always difficult to prove) damage, (b) a specific amount as lump sum compensation, (c) a specific amount as a penalty clause and (d) their combination.
More commonly, of the above, a specific amount is agreed upon as a penalty clause – although sometimes ineffectively. The amount of the latter is agreed, often, extremely high. In this way the parties intend to (also) prevent the violation of the confidentiality agreement. They aim, that is, (also) at the preventive function of the penal clause.
Confidentiality contracts (NDAs, as they are most commonly known) are used more and more often in transactions; in our country as well.
They provide adequate, preventive in particular, protection in terms of ensuring business confidentiality. And, in retrospect, the protection they provide can only be identified as of great importance.
However, they are not treated with due care and nor are they given due value. We often come across, identical in content, texts for uses unrelated to what they can ensure.
Time to give them their due care and value.
And it is a given that, in this way, the contracting parties will feel (and will be) more secure: the existence of the specific contracts will act as a deterrent for potential offenders but also facilitate the proof of the damage and the imposition of the relevant sanctions.
Stavros Koumentakis
Managing Partner
P.S. A brief version of this article has been published in MAKEDONIA Newspaper (May 1st, 2022).
Disclaimer: the information provided in this article is not (and is not intended to) constitute legal advice. Legal advice can only be offered by a competent attorney and after the latter takes into consideration all the relevant to your case data that you will provide them with. See here for more details.