Non-disclosure agreements: how to protect the company’s information. A perspective under Italian Law

The Non-Disclosure Agreement, also called “NDA”, is a contract that establishes the duty of the parties to maintain confidentiality regarding certain information disclosed between them.

It is a fundamentally important tool in commercial and professional relationships, during which sensitive data and information are exchanged. The goal is to avoid improper use of the same.

In the following article we will see in detail in which cases it is necessary to rely on a Law Firm expert in corporate contracts, to best protect the various assets and industrial secrets in relationships with the various stakeholders.

Non-disclosure agreement: when should it be stipulated?

An NDA helps companies avoid damage to their business, in fact, it can preserve economic and financial information, industrial secrets, non-patented inventions, communication, marketing strategies and work processes.

There are several contexts in which it is necessary to protect sensitive information, for example:

• Commercial transactions: during various negotiations (for example mergers or acquisitions) companies inevitably find themselves forced to communicate financial details, plans and strategies.
• Protection of innovative ideas: essential to prevent the disclosure of concepts, research, inventions and other assets.
• Collaboration with external parties and employees: freelancers, collaborators and employees may inevitably come into contact with company secrets or sensitive information.

NDAs are a very important legal tool to preserve the confidentiality of information, but it is necessary that the contract is drafted in a correct manner, describing its object precisely and clearly.

We can find a regulatory reference in art. 2105 of the Italian Civil Code: “The employee must not conduct business, on his own behalf or on behalf of third parties, in competition with the entrepreneur, nor disclose information relating to the organization and production methods of the company, or use it in a way that could cause harm to it“.

And if the other party does not want to sign the contract?

Startups often need to protect their ideas, especially in the crowdfunding phase, to find investors who can help their business grow. This is a very delicate phase in which the need for disclosure and secrecy can clash.

If a potential investor refuses to sign an NDA, you can make the most of your communication skills, conveying the strengths of the project without revealing crucial details, or you can identify other forms of protection under IP law with your lawyer.

Difference between a confidentiality agreement (or NDA) and a confidentiality clause?

Laypeople or entrepreneurs without a particular legal background often mix two different instruments: confidentiality agreement and a confidentiality clause. Let’s try to clarify this.

The confidentiality agreement is a contract that regulates the relationships between the legal entities that sign it, for example two companies involved in commercial negotiations. The goal is to avoid the dissemination of know-how and significant assets with economic and business value.

The confidentiality clause, on the other hand, is an element of a much broader contract.

Depending on the need for protection, an experienced lawyer will be able to recommend the most suitable instrument.

Essential elements of a confidentiality agreement

A contract is effective when it is customized taking into account the specific protection needs of the company, but there are some elements that must never be missing:

1. Definition of confidential information: it must be clear which data, documents or knowledge are covered by the agreement.
2. Obligations of the parties: the parties must undertake not to disclose or use confidential information for purposes other than those agreed.
3. Duration of the confidentiality obligation: it can vary based on the contractual needs and the type of information processed.
4. Exclusions from the confidentiality obligation: for example, information already in the public domain or obtained legitimately from third parties.
5. Dispute resolution clauses: they can provide for the use of arbitration or other forms of alternative dispute resolution.
6. Sanctions for violation: Consequences must be foreseen in case of violation of confidentiality obligations, such as compensation or contractual penalties.

What happens in the event of a breach of the agreement?

The parties who sign the agreement undertake not to disclose sensitive information to third parties. But what happens if this obligation breached?

It should be emphasized that the concept of non-disclosure does not only concern the public sphere, but also the private one. This means that any form of communication to unauthorized persons is prohibited, even just friends and family.

The breach may result in an emerging damage understood as a financial loss or the loss of an opportunity for profit (loss of profit) but also damage to reputation or image.

The party who violates the non-disclosure becomes in breach of the contract and therefore exposes itself to the obligation to compensate for damages. Therefore, art. 1218 of the Italian Civil Code says: “The debtor party who does not exactly fulfill the due performance is required to pay compensation to the other party, unless he proves that the non-performance or delay was caused by reasons which made such performance impossible for reasons not attributable to him“.

Often, a penalty clause (better: liquidated damages) can also be included in an NDA, which can be referred to in the event of non-compliance. In such case in fact, the parties agree in advance on the amount to be paid to the non-defaulting party in the event that the agreement is not respected. The penalty clause offers an alternative to resorting to the judge, already established in the pre-contractual phase.

However, the defaulting party can still contest any charges by referring the matter to a Court.