NDA (Non-disclosure agreement)

An NDA (non-disclosure agreement, also called a confidentiality agreement) is a contract in which the party receiving confidential information agrees not to disclose it to third parties and to use it only for an agreed purpose. In product development it is typically signed before drawings, CAD models, samples, test results or business plans go to a supplier, design firm, manufacturer or potential partner.

A one-way (unilateral) NDA protects information disclosed by one party only, while a mutual NDA protects both sides in a two-way exchange. Both common law and civil law systems allow such agreements, and the parties are largely free to set the content themselves. NDAs are also closely tied to trade secret law: in both the US and the EU, information qualifies as a trade secret only if its owner takes reasonable steps to keep it secret, and a signed NDA helps show that.

A typical NDA defines what counts as confidential information (including information shared orally and samples), the purpose it may be used for and who may have access to it. It contains exclusions for information that is public, already known, independently developed or lawfully received from a third party, and for disclosure required by law. It also sets the duration of the obligation, the duty to return or destroy materials, and the consequences of a breach.

Remedies depend on the governing law. In civil law countries such as Germany or the Czech Republic, NDAs often include a contractual penalty, a fixed sum due on breach without proof of the actual loss; depending on the law, a court may reduce an excessive one. Under US and English law, a clause that works as a penalty is generally unenforceable, so NDAs there rely mainly on actual damages and injunctions, sometimes with a carefully drafted liquidated damages clause. Confidentiality is usually agreed for several years, and for genuine trade secrets for as long as the information remains secret.

Sign an NDA before the first exchange of material that has value to you: production drawings, 3D models, formulations, source code, measurement results or details of a solution you want to protect with a patent or utility model. It is useful when requesting quotes for development or manufacturing, when handing over samples for reverse engineering, when negotiating a license and when bringing freelancers or contractors into a project.

Investors are a different case: many venture capital funds do not sign NDAs at the early stage. Prepare materials for the first meeting that do not reveal the core of your know-how, and share the details only once an agreement is in place.

A definition that is too broad ("all information in any form") is hard to enforce, and so is a vague one. Name the specific materials, mark confidential documents as such and, for samples, consider an explicit ban on reverse engineering. Share only what the other side needs for the agreed purpose: for a quote, a drawing of the part is often enough, not the whole assembly.

An NDA usually does not settle who owns improvements arising from the cooperation (that belongs in a development or license agreement), and it typically does not stop the other side from developing a similar solution independently. It binds only those who signed it and does not replace a patent or utility model. Be careful with an NDA drafted by the other side that in fact protects only them, for example through a residuals clause that lets their staff use information they retain in memory. With foreign partners, agree on the governing law and the competent court, and have a lawyer review important agreements.