Business operations inherently involve the exchange of "sensitive information" between partners. As the name suggests, this refers to data whose widespread dissemination could harm a business's interests (e.g., loss of competitive advantages) and which requires special protection against unauthorized third-party access.
To avoid adverse consequences, partners enter into a non-disclosure agreement (hereinafter – "NDA"). However, parties often view the reliability of such agreements skeptically, signing them more as a formality without expecting their actual enforcement.
This distrust of NDAs stems from the current lack of specific regulation for them in the Russian Federation. C Cases experts have found an answer to a common client question: how can an NDA be drafted to ensure protection and hold a violator accountable?
Legal Regulation
There is no separate law specifically dedicated to NDAs in the Russian Federation. This leads to courts evaluating such agreements differently: based on their content, some courts deem them unenforceable, while others consider them enforceable.
To minimize the risk of an NDA being deemed unenforceable, let's look at what judicial practice "advises":
- Thoroughly define the essential terms of the NDA: the definition of confidential information itself; the definition of the parties' rights and obligations; the definition of the non-disclosure period for confidential information.
- Given that all essential terms have been agreed upon by the parties and the NDA has been signed by them, such an agreement constitutes a civil law contract, entailing civil law obligations and sanctions for its non-performance. Under these circumstances, the imposition of a penalty or the application of other NDA-stipulated sanctions is considered lawful.
Common Mistakes When Drafting NDAs
- A "vague" list of information that the parties deem confidential, as well as the procedure for its transfer.
- Absence of an NDA term.
- Lack of clear regulation regarding breaches of confidentiality (e.g., what constitutes "disclosure," "leakage," or "unauthorized use" of confidential information).
- Excessively high liability.
Recommendations from the C Cases Team
For an NDA to be "effective," the C Cases team recommends including the following in the document:
- Whether confidential information will be disclosed by one party, multiple parties, or both/all parties.
- The scope of confidential information and explicitly state what is not included.
- What measures the receiving party must implement to protect confidential information.
- Which actions and/or inactions constitute a breach of confidentiality terms (e.g., disclosure, unauthorized use).
- Liability for breaching confidentiality (including a combination: compensation for damages + payment of a penalty).
Recommended NDA Structure:
- General Provisions (Scope and Definitions).
- Subject Matter of the NDA.
- Procedure for the receipt, transfer, and use of confidential information.
- Confidential Information Protection Measures.
- Term of the NDA.
- Liability of the Parties.
- Dispute Resolution Procedure.
- Final Provisions.
- Party Details and Signatures.
- Appendices:
- List of confidential information (if the parties have agreed that the definition of confidential information is not limited to information explicitly marked as such).
- Information Transfer and Acceptance Form.
Conclusion
Confidential information is as significant an asset for any entrepreneur as financial resources. An NDA is an important tool for protecting this asset.
The key challenge lies in drafting the NDA provisions: vague wording, an incomplete list of essential terms, and the absence of clear information protection mechanisms often lead courts to deem such an agreement an invalid transaction and, consequently, an unenforceable agreement.
The recommendations from the C Cases team and the example clauses provided in this article will help the parties to:
- clearly define what constitutes confidential information and what does not.
- establish a clear mechanism for the transfer, storage, and use of confidential information.
- stipulate the necessary measures for protecting confidential information.
- define the measures of liability to be applied to the receiving party for breaching the confidentiality regime.
If you need to prepare or analyze an existing NDA 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 'On Trade Secrets' dated July 29, 2004, No. 98-FZ.
- Federal Law 'On Information, Information Technologies, and Information Protection' dated July 27, 2006, No. 149-FZ.
- Civil Code of the Russian Federation dated November 30, 1994, No. 51-FZ.
- Ruling of the Intellectual Property Court dated October 31, 2018, No. C01-843/2018 in case No. A56-92673/2016.