- 1 Necessity of a Non-Disclosure Agreement (NDA)
- 2 Mutual agreement and unilateral agreement
- 3 Contractual Clauses of Non-Disclosure Agreement
- 3.1 Identification of the parties
- 3.2 Definition of Confidential Information
- 3.3 Exclusion from confidential information
- 3.4 Obligation of confidentiality and prohibition of use for other purposes
- 3.5 Degree of Attention
- 3.6 Disposal of confidential information
- 3.7 Request for Return of Confidential Information
- 4 General provisions
- 5 Non-Disclosure Agreement in Letter Form
- 6 Confidentiality agreements with employees and consultants
- 7 If a confidentiality clause is included in the basic agreement after the confidentiality agreement has been signed
Necessity of a Non-Disclosure Agreement (NDA)
A non-disclosure agreement in English is called a Non-Disclosure Agreement (NDA) or Confidentiality Agreement (CA) for short. In international transactions, the abbreviations NDA and CA are more widely used. If a company initiates a business agreement with a foreign country or starts discussions regarding a new business, the information provided may be leaked to other businesses or used for other business purposes if a confidentiality agreement is not concluded. In addition, discussions of M&A at a listed company, for example, are insider information, and the fact that discussions are being held to conclude a contract is often confidential in itself. In such cases, since information management is important, at a minimum, a nondisclosure agreement should be concluded and the parties involved should confirm how the information will be managed.
Mutual agreement and unilateral agreement
When we look at the confidentiality agreements that our clients ask us to review, we find that some of them stipulate that the client must maintain the confidentiality of information disclosed by the other party (foreign company), but do not stipulate the confidentiality of information disclosed by the Japanese company. In this case, there are no protection measures at all for the secrets of the Japanese company. Therefore, unless the contract is a bilateral contract that protects the information disclosed by either party or a unilateral contract that protects the information disclosed by the Japanese company, the information of the Japanese company will not be protected. Of course, if there is no particular provision of confidential information on the part of the Japanese company, there is no problem with a unilateral contract. After a unilateral contract is concluded in which only the information of the foreign company is protected, you may be asked to prepare a contract or letter of attachment that protects your information on another occasion. In the case of a bilateral agreement, the party disclosing the information is sometimes referred to as the Disclosing Party and the party receiving the information as the Receiving Party.
Contractual Clauses of Non-Disclosure Agreement
Identification of the parties
When conducting international transactions, it is extremely important to identify the parties. In the case of transactions between Japanese domestic companies, it is possible to confirm whether the other party is a corporation or not, who the representative is, etc. by obtaining a certified copy of the commercial register at the Legal Affairs Bureau or by obtaining information from information providers such as Teikoku Data Bank, etc. In addition, a lot of information is obtained during the transaction process. Since there are many cases in which information is obtained during the transaction process, it is unlikely that the identification of the counterparty will be a problem. On the other hand, when conducting an international transaction, it is necessary to confirm whether the counterparty is a corporation, what type of corporation, a joint venture or partnership, and whether it is registered with a public institution. If the parties are incorrectly identified (for example, if the contract was concluded as a limited liability company, but the other party to the contract is not registered as a corporation and is in fact a partnership), even if the other party claims damages for breach of contract or files a provisional injunction, the nondisclosure agreement itself may be invalid and the counterparty may lose the case in court. The identification of the parties is expressed in the recitals at the beginning of the agreement.
This Non-Disclosure Agreement (the “Agreement”) is made and entered into on the 20th day of January 2019 by and between XXXX a limited liability company incorporated under the law of Japan, having its registered office at Taito Bldg, 1-1-1 Marunouchi, Chiyoda-ku, Tokyo, 100-0001, Japan (hereinafter called “XXX”) and YYY Ltd. A limited liability company incorporated under the law of California, having its registered office at 7 floor Brandies, BBB str. Los Angeles, California, USA(hereinafter called “YYY”).
Definition of Confidential Information
The most important aspect of drafting an English confidentiality agreement is how the confidential information is to be identified. Simply stating “any and all information disclosed by the Disclosing Party” is too broad and makes it unclear as to the scope of confidentiality. Also, there are two types of disclosures: written disclosure and oral disclosure. When disclosing in writing, it is necessary to decide whether to treat only the portion of the document stating that the information is confidential as confidential or whether to treat all documents passed as confidential. If you are trying to manage secrets properly, it would be preferable to limit the scope of confidential information as confidential only when the document is marked Confidential, etc., and to have the information once designated as confidential be managed in a very strict manner. From this perspective, it would be more appropriate to treat information disclosed orally as confidential information only if it is confirmed in writing at a later date (e.g., within 30 days from the date of disclosure) that the information is confidential.
“Confidential Information” shall mean any and all business, technical, and financial information related to the Subject Purpose defined below disclosed by the Disclosing Party to the Receiving Party, either directly or indirectly, Confidential Information may include, by way of example, but without limitation, products, specifications, formulae, test, test procedures and test reports, equipment, business strategies, customer lists, know-how, drawings, pricing information, inventions, ideas, and other information, or its potential use, that is owned by or in possession of the respective Party.
Exclusion from confidential information
Information disclosed by the disclosing party that is already public knowledge at the time of disclosure or information independently developed by the party receiving the information is excluded from confidential information that should be protected by a nondisclosure agreement. These provisions are designed to clarify the outlying portions of confidential information. The following provisions are common exclusions of this type, but if your company is primarily a party to the disclosure of information and there is a high need to protect the information disclosed by your company, the exclusions should be limited. On the other hand, if your company is primarily a recipient of information and you want to provide for as wide a range of situations as possible in which confidential information can be disclosed due to insider information disclosure or legal disclosure requirements, then you need to provide for a wide range of exclusions. Thus, it is not correct to think that it is sufficient to include standard contents in a general provision for the exclusion of confidential information. It is necessary to clarify the scope of the exclusion in consideration of the circumstances of your company and the type and nature of the information to be disclosed.
Notwithstanding anything to the contrary contained herein, information that the Recipient can prove with documentary evidence falls into one or more of the following shall not be regarded as Confidential Information for the purpose of this Agreement:
1 Information which is at any time in the public knowledge otherwise than through act or failure to act on the part of the Receiving Party;
2 Information which was known to Receiving Party before its receipt of the same from Disclosing Party, without obligation of confidentiality;
3 Information which is at any time rightfully received by the Receiving Party from any third party without obligations of confidentiality;
4 Information which is at any time developed by the Receiving Party independently of Confidential Information received from the Disclosing Party.
Obligation of confidentiality and prohibition of use for other purposes
The purpose of concluding a nondisclosure agreement is to manage confidential information as secret, to prevent the information from being leaked, and to prevent the confidential information from being used for other than its intended purpose. Therefore, most non-disclosure agreements stipulate the prohibition of leakage of confidential information and the prohibition of use for other than the intended purpose. However, since confidentiality agreements are concluded in order to achieve a certain business purpose, if the information cannot be disclosed to the extent necessary to achieve that purpose (e.g., to verify the possibility of M&A), the business purpose will not be achieved. Therefore, it is necessary to clarify when the party receiving the information can disclose confidential information and the conditions for such disclosure (e.g., disclosure to employees engaged in the relevant business purpose), and to clarify that the information cannot be disclosed except in such cases.
Receiving Party shall keep in confidence, and shall not disclose to any third party, Confidential Information, and Receiving Party shall not use except for Subject Purpose. The Receiving Party shall (1) limit the use of and access to Confidential Information to its employees who need to know Confidential Information for Subject Purpose, and (2) cause such employees to comply with the same obligations set for the in this Agreement. The obligations set for the in this Agreement shall continue for five years from the receipt of Confidential Information from Disclosing Party.
Degree of Attention
In many cases, a clause requiring the party receiving the confidential information to manage the confidential information with a certain level of care is included. In particular, in cases where disclosure is permitted under exceptional circumstances (when the information is disclosed to an employee or subcontractor), the receiving party must require the employee or subcontractor to also assume a duty of confidentiality, otherwise it will be impossible to deal with the situation when the information is disclosed to an employee or subcontractor. A sample agreement might look something like this:
The Receiving Party agrees that it shall take reasonable measures to protect the secrecy of and avoid disclosure and unauthorized use of the Confidential Information of the Disclosing Party. Without limiting the foregoing, the Receiving Party shall take at least those measures that it takes to protect its own most highly confidential information and shall ensure that its employees who have access to the Confidential Information of the Disclosing Party have signed a non-use and non-disclosure agreement. in content similar to the provisions hereof, prior to any disclosure of the Confidential Information to such employees. The Receiving Party shall not make any copies of the Confidential Information of the Disclosing Party unless the same are previously approved in writing by the Disclosing Party. The Receiving Party shall reproduce the Disclosing Party’s proprietary rights notices on any such approved copies, in the same manner in which such notices were set forth in or on the original.
Disposal of confidential information
In order to properly manage information, it is necessary to clarify the handling of information (especially of the written documents) upon termination of the contract. For example, it may be necessary to require the party receiving the information to dispose of the delivered documents and submit a certificate of disposal. In the case of Japan, if you ask an industrial waste contractor, etc., they can certify that said documents have been disposed of by attaching photographs of the documents and hard disks containing confidential information, and that the hard disks have been disposed of.
Receiving Party agrees to return or destroy, upon Disclosing Party’s request, all written and other tangible materials which contain any Confidential Information received from Disclosing Party, including all extracts and copies thereof.
Request for Return of Confidential Information
It is often clarified that the disclosing party has the right to demand that confidential information be returned or disposed of so that it will not be used without permission in the future.
All documents and other tangible objects containing or representing Confidential Information which have been disclosed by the Disclosing Party to the Receiving Party, and all copies thereof which are in the possession of the Receiving Party, shall be and remain the property of the Disclosing Party within ten (10) days after the Disclosing Party’s written request.
Governing law; jurisdiction
In the event of an international transaction, the laws of the home countries of the parties will differ, and it is necessary to determine which country’s laws shall apply. If there is an agreement on the governing law, the agreement shall be followed. If there is no agreement, the law of which country shall be applied shall be determined in accordance with the provisions of the private international law of the venue. Since the confidentiality agreement is concluded for the purpose of conducting the underlying transaction, for example, if an international sales agreement is concluded, the governing law and jurisdiction may be stipulated in the agreement, and the confidentiality agreement may not specifically stipulate the governing law and jurisdiction.
This Agreement and all transactions contemplated hereby, shall be governed by, construed and enforced in accordance with the laws of Japan. The Parties agree that all disputes hereunder shall be solely and exclusively determined by the competent courts of Japan.
General provisions are often included in nondisclosure agreements. General provisions include the following:
Prohibition of assignment or transfer
This Agreement or any part of this Agreement may not be assigned or transferred by either party without the prior written consent of the other party. Any assignment or transfer without such consent shall be null and void.
This document contains the entire agreement between the parties with respect to the subject matter hereof, and neither party shall have any obligation, express or implied by law, with respect to trade secret or proprietary information of the other party except as set for the herein.
Any failure to enforce any provision of this Agreement shall not constitute a waiver thereof of any other provision. This Agreement may not be amended, nor any obligation waived, except by writing signed by its duly authorized representative.
Non-Disclosure Agreement in Letter Form
A typical nondisclosure agreement is usually signed by both parties to the agreement in writing, but it can also be in the form of a letter in which one party inserts a statement that the other party will protect the confidential information provided by the other party as confidential. This is called a letter-type nondisclosure agreement. Another method is for X to deliver a letter to Y stating that all information provided by X is confidential information and that the recipient of the information is obligated to maintain confidentiality, and for Y to reply stating that he or she understands this. In either case, the recipient of the confidential information is obligated to maintain confidentiality, so the legal effect is not different from that of a nondisclosure agreement.
Confidentiality agreements with employees and consultants
If you hire employees or consultants, there is a possibility that in the future these persons may take the company’s confidential information or start a competing company using the confidential information. The damage to the company could be extremely severe if an insider betrays the company and provides information to outside parties. Especially recently, it has become extremely easy to take confidential information outside the company by transferring the information to the outside via the Internet (e-mail), downloading the information to an external device, or transferring the information to a memory device such as USB.
It is not enough to simply stipulate the management of confidential information in internal company regulations such as work rules. When hiring employees or consultants, it is necessary to have them individually sign a nondisclosure agreement to ensure that they fully understand the importance of information management. Also, when an employee leaves the company, it is important to have them sign a confidentiality agreement again and confirm in writing that they will not take inside information with them, as a precondition to providing severance pay.
When drafting a nondisclosure agreement with an employee or consultant, in addition to the nondisclosure clause, it is also necessary to stipulate several other promises to be kept by the employee or consultant. These clauses include confirmation of provisions regarding employee inventions, a clause regarding non-compete obligations, and confirmation that the employee or consultant will not solicit or draw on other employees, contractors, or other parties.
If a confidentiality clause is included in the basic agreement after the confidentiality agreement has been signed
After a nondisclosure agreement has been signed and executed, a basic agreement, such as a sales agreement or license agreement, may be drafted and the nondisclosure clause may be stipulated in that agreement. In this case, the validity of either agreement is a matter of interpretation of the parties’ intentions. In the absence of clear guidelines, the later agreement is valid according to the principle that the earlier agreement on the same matter is overridden by the later agreement. Therefore, it is likely that the confidentiality agreement will be interpreted to apply to confidential information provided prior to the execution of the basic agreement, and that the terms of the basic agreement will apply to confidential information provided thereafter.