Protect Your Business: A Complete Guide to NDAs

What is an NDA?

An NDA (Non-Disclosure Agreement) is a contract between two or more parties in which they agree not to share confidential information with others. If the agreement is breached, the responsible party may face a contractual penalty.

Types of NDAs:

• With a contractual penalty: Most NDAs under Czech law include a contractual penalty. This is because it is often very difficult to prove the exact damage caused by the disclosure of confidential information. The contractual penalty provides a clear, enforceable consequence.
• Without a contractual penalty: Some NDAs serve more as a “warning.” They signal that information should not be disclosed, but if a breach occurs, enforcement is difficult or impossible, and no formal sanction can be applied.

What Should a Properly Structured NDA Look Like?

A well-drafted NDA should include several key elements to ensure it is valid and effectively protects your information.

• Definition of Information: The NDA should clearly define what information must remain confidential. Usually, this is stated broadly to cover all information shared during the course of cooperation.
• Definition of Prohibited Conduct: The agreement should specify what actions are prohibited, typically the disclosure of confidential information. It should be comprehensive and cover all possible ways information could be exposed.
• Enforceability: Enforcing NDAs can be complex. While some violations, like sending a confidential email outside the company, are obvious, most breaches are harder to prove. Do not rely solely on the contract; exercise caution in sharing sensitive information.

Beware of the Competitive Clause

It’s important to distinguish an NDA from a non-compete clause:

• NDA: Protects the information you know.
• Non-compete clause: Restricts your activities, e.g., prevents you from working with certain clients or in specific roles.

When and With Whom to Sign an NDA?

• Certain professionals, such as lawyers or tax advisors, are already bound by confidentiality laws, so an NDA may be unnecessary.
• When negotiating with investors, signing an NDA too early can be counterproductive and may even harm your position.
• An NDA should generally be signed when you are in a position of power, e.g., as a client requesting it from contractors or employees.

Be Careful of Overbroad NDAs

If the NDA covers information that is publicly available, it may be invalid. Courts may also reduce excessive contractual penalties (e.g., demanding CZK 20 million for a minor breach).

Summary

The most effective protection for your information is not just a well-written NDA, but careful consideration of who you share information with and what you disclose. If you want to keep information confidential, sometimes the best strategy is simply not to share it.