Doing business is impossible without partners exchanging sensitive information. As the name suggests, this is information whose wide dissemination could harm an entrepreneur's interests (for example, through the loss of a competitive advantage) and which needs special protection against unauthorised access by third parties.

To avoid adverse consequences, partners sign a non-disclosure agreement (an "NDA"). However, the parties are often sceptical about how reliable such agreements are and sign them as a formality, without expecting them to be enforced in practice.

The reason for this mistrust is that the Russian Federation currently has no specific regulation of NDAs. C Cases experts have found an answer to a question clients often ask: how should an NDA be drafted to protect yourself and hold a violator liable?

Legal regulation

There is no separate law in the Russian Federation dedicated specifically to NDAs. As a result, courts assess such agreements differently: depending on their content, some courts find them unenforceable and others enforceable.

To minimise the risk of an NDA being found unenforceable, let us see what case law "advises":

• Work out the essential terms of the NDA in detail: the definition of confidential information itself, the rights and obligations of the parties and the period during which confidential information must not be disclosed.
• Once the parties have agreed all the essential terms and signed the NDA, the agreement is a civil law contract giving rise to civil law obligations and to sanctions for non-performance. In these circumstances, recovering a penalty or applying other sanctions provided for by the NDA is held to be lawful.

Typical mistakes when drafting an NDA

• A "vague" list of the information the parties consider confidential and of the procedure for transferring it.
• No term of the NDA.
• No clear rules on what constitutes a breach of confidentiality (for example, what amounts to "disclosure", a "leak" or "unauthorised use" of confidential information).
• Excessively high liability.

Recommendations from the C Cases team

For an NDA to "work", the C Cases team recommends setting out in the document:

• Whether confidential information will be disclosed by one party, several parties or both/all parties.
• What confidential information consists of, and expressly what it does not include.
• What measures the receiving party must take to protect confidential information.
• Which actions and/or omissions constitute a breach of confidentiality (for example, disclosure or unauthorised use).
• Liability for a breach of confidentiality (including a combination: compensation for losses plus payment of a penalty).

Recommended NDA structure:

• General provisions (concepts and definitions).
• Subject matter of the NDA.
• Procedure for receiving, transferring and using confidential information.
• Measures to protect confidential information.
• Term of the NDA.
• Liability of the parties.
• Dispute resolution.
• Final provisions.
• Details and signatures of the parties.
• Appendices:
  • A list of confidential information (if the parties have agreed that confidential information is not limited to information marked as confidential).
  • A form of information transfer and acceptance certificate.

Conclusion

Confidential information is as valuable an asset for any entrepreneur as money. An NDA is an important tool for protecting that asset.

The key problem lies in drafting the NDA's provisions: vague wording, an incomplete list of essential terms and the lack of clear mechanisms for protecting information often lead courts to find such an agreement void and therefore unenforceable.

The C Cases team's recommendations and the examples given in this article will help the parties:

• clearly define what is and is not confidential information;
• establish a clear mechanism for transferring, storing and using confidential information;
• provide for the necessary measures to protect confidential information;
• define the liability that should apply to the receiving party for a breach of confidentiality.

If you need to prepare an NDA or review an existing draft for legal risks, the C Cases team is ready to provide comprehensive legal support and draft a "working" NDA for you.

Sources

• Federal Law No. 98-FZ of 29.07.2004 "On Trade Secrets".
• Federal Law No. 149-FZ of 27.07.2006 "On Information, Information Technologies and Information Protection".
• Civil Code of the Russian Federation No. 51-FZ of 30.11.1994.
• Resolution of the Intellectual Property Court of 31.10.2018 No. S01-843/2018 in case No. A56-92673/2016.