In our international world, there may come a time when two parties need to create an international nondisclosure agreement or NDA. This scenario may arise for a variety of reasons, but when it does, the parties want to ensure that their information and understanding stays between them. When this is the case, the parties may have a lot of questions about the process and how to make it enforceable between the parties and in their respective countries. Crossing jurisdictions can cause confusion and problems with enforcement but if they are done well, and NDAs can protect both parties and the information that they have shared between them. These agreements are essential to conducting business around the world. This article will examine NDAs and why they are used before turning to a discussion on the necessary elements of an NDA. Next, it will discuss the considerations that need to be made when creating an NDA that will be enforceable internationally. Finally, it will end with a discussion of some common problems that international NDAs may present and ways to work around these issues.
The acronym NDA stands for a nondisclosure agreement. A nondisclosure agreement is a contract between parties to keep private and confidential information between the parties. These agreements are essential for trade and business around the world because conducting business often involves information that is vital for the prosperity of the business and would be detrimental if it was given to competitors. Because certain vendors and companies may work with multiple competitors, there will often be agreements not to share certain information between the companies. They can also be a part of an employment agreement and require that employees will not share information that is a part of the company that they work for with other businesses; however, these are less likely to be international NDAs, so this article will focus primarily on agreements between businesses.
Several types of information may be protected by nondisclosure agreements and protect different aspects of a company’s business. These types include:
- Development: Every company has a product that it sells, whether it is a service or a good or another type of product. These products are the core of what a company does and directly impact the health of the company. Companies will also often try to create new products to add to their business, and these ideas are often protected by NDAs, especially when the products are manufactured outside of the company.
- Customers: Companies will often have customers on a list that they approach and sell to regularly. This information is important to protect because competitors are often attempting to recover customer lists and take customers from each other.
- Business Plans: Similar to product development, companies will also often have plans for how to develop the business in the future. Some of this may be particularly strategic and needs to remain confidential until the company is ready to release the news.
- Litigation: Companies will often require their partners to keep any pending litigation between them confidential to ensure that the rest of the world is not privy to their disagreements until there is a resolution of some kind.
NDAs cannot include information that is related to illegal activities or in violation of public policy. Violating an NDA will often result in litigation, usually in the form of a breach of contract suit unless the information is of a particular kind, such as trade secrets or unfair competition.
Elements of NDAs
When creating an NDA, companies will need to ensure that the agreement meets the basic requirements of a contract. This means that the parties have created a legally enforceable agreement between the two of them. Particularly, the agreement should include the following elements:
- Parties: While identifying the parties may feel like a simple task, nondisclosure agreements can be particularly tricky because there are often unknown parties who will be privy to certain information shared with another party and will need to be included in the NDA. This can happen when one party is disclosing to another party who is expecting to share that information with an affiliate with a direct role or an agent.
- Confidential Information: The agreement should also outline what is confidential between the parties. This can include whether the confidential information is only what is shared in written communication or if it will be shared orally. This may be the part of the agreement that the parties have the most difficulty agreeing on because the disclosing party will want the definition to be broad and cover as much as possible, while the receiving party will want the definition to be limited to certain information.
- Scope: This is the main portion of the agreement. The receiving party will have two obligations: (1) to keep the information confidential and (2) to refrain from using the information for themselves. The first part includes taking reasonable steps to ensure the information remains confidential and the second part is to protect the disclosing party from losing out on the value of the information.
- Exclusions: There will also always be exclusions from the confidential information to address situations where keeping the information confidential would be unfair or unduly burdensome.
- Term: The NDA will likely have an end date, which will usually be after the information no longer has value.
Additionally, the terms of the agreement cannot be too broad, burdensome, vague, or unreasonable, and the confidential information cannot be something that has already been disclosed or that would eventually become public knowledge.
Two Jurisdictions, One NDA:
With a basic understanding of nondisclosure agreements, there are some important considerations to make when creating an NDA that is applicable internationally. While agreements created within the United States will often be enforced, the enforcement of agreements internationally can be more difficult. A nondisclosure agreement in one jurisdiction may not be applicable in another. Creating an NDA that protects the interests of both parties, focuses on the enforceability of the contract, and provides a course of action if the agreement is violated. These considerations include:
- Choose Good Partners: One of the best ways to ensure that your agreement is honored and that the information stays confidential is to do the research and identify the best partners to share the information with. Many companies will rely on a good reputation to ensure that they get business, so many companies will work hard to ensure that they protect your information.
- Narrow Your Information: First, it is important to only share the information necessary to accomplish the goal with the other party. Second, make sure that you are only limiting the other party’s ability to share information that is truly confidential and necessary. Agreements will be more likely to be followed and enforced if the information is confidential and it is necessary to keep the information close.
- Choose Your Law: A perk of creating an international agreement is that the parties can choose which contract law is applicable in the situation. Each country will have a law for how to deal with contracts, and there will be perks and drawbacks of each law. Choosing the one that will provide the best protection for both parties is essential.
- Consent to Jurisdiction: Once you have decided which law applies to the agreement, you will need to ensure that the agreement will be enforced in the jurisdiction that is required. For example, if the parties agree to apply US law, they will likely need to ensure that a foreign company consents to the jurisdiction of the US courts. This may be tricky to negotiate.
- Solve the Problems: Problems with the agreement will likely arise, so it is important to have a plan when they do arise. The most common recourse for issues will be arbitration, as it is the easiest for multi-jurisdictional disputes to be resolved.
Other considerations will need to be made as well, but considering the standard NDA elements and these specific questions for international NDAs will help the parties find an agreement that works for them.
When Things Go Wrong:
Occasionally, even if the parties are careful, things will go wrong with the agreement. Typically, these issues will present themselves when the receiving party breaks the agreement and shares the information or use it for their own gain and the disclosing party needs to enforce the agreement. A common issue is the enforcement of a judgment against a foreign party. This can be further complicated if one of the parties is seeking injunctive relief to stop the receiving party from sharing or using the information. Occasionally, even if the parties can agree on jurisdiction and get a judgment in that jurisdiction, they may need the foreign party’s country to enforce the judgment, which it may not honor. For these reasons, arbitration is often the best form of resolution because most countries will honor an arbitration award and enforce it against their citizens. It may also be helpful to have the jurisdiction and law be the country in which the foreign party resides, as they will likely honor a judgment from their own court.
International NDAs are becoming a more standard practice and are honored as other international contracts. It takes skill and careful planning to ensure that the parties can keep the information shared between them confidential and ensure that they are protected. While jurisdiction may pose some problems, international nondisclosure agreements are often a key in securing trade between companies and countries, and the practice is growing and influencing the market. If you are planning to do business in a foreign country and will need to share confidential information to do so, creating an NDA may be helpful to ensure the information is kept secure and your company can prosper.