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Trade Secret Protection and its Impact on Non-Disclosure Agreements (NDA)

  • Germany


    Required changes in drafting of NDAs in accordance with the European Trade Secrets Directive (EU 2016/943) and the upcoming German Implementation Act

    Scope and significance of trade secret regulations

    The general objective of the EU Trade Secrets Directive (EU 2016/943) and its national implementation, the coming German Act transferring it into local law (Geschäftsgeheimnisgesetz, GeschGehG), is to provide a uniform standard of trade secret protection in the European Union.

    The Trade Secrets Directive guarantees a consistent and extensive protection against unlawful acquisition, use and disclosure of trade secrets at European level. The economic significance is not to be underestimated as trade secrets play a decisive role regarding the protection of intellectual property along with the use of patents. As the unlawful acquisition and disclosure of trade secrets can cause extensive sale losses, the Trade Secrets Directive is especially relevant for securing a competitive equality in the EU. More than ever before, companies will be held responsible as they are required to implement specific measures in order to keep commercially sensitive information secret.

    NDAs may constitute such a specific measure required by law, provided that they are sufficiently comprehensive and precise. In order to rely on a NDA as such a confidentiality measure, its scope and content must be carefully reviewed in order to fulfil such requirement.

    What should be considered when drafting NDAs?

    1. Identification of secret information – Sensible trade secrets worth protecting should be identified and flagged/marked as such.
    2. Specific clauses – General clauses as used in the past making all business information disclosed under the NDA subject to confidentiality are inadequate.
    3. Detailed description – A detailed description of the protected trade secrets in accordance with the new definition is required.
    4. Lawful controls – The trade secret holder should explicitly reserve lawful rights to audit the recipient of the trade secret.
    5. No sub-licences and no filing of actions – The trade secret holder should exclude both, the granting of sub-licences and the filing of actions by the recipient based on any information disclosed.
    6. No reverse engineering - Reverse engineering by the recipient should be excluded.
    7. Contract penalty - To the extent permitted, the obligations of secrecy should be secured by a reasonable contractual penalty.

    What other appropriate measures should be considered?

    • Define clear responsibilities – Companies should establish a responsible department to set up trade secret related regulations and implementation measures.
    • Evaluation and categorization of trade secrets – Companies should categorize each trade secret according to its importance and set up handling provisions/SOPs.
    • Defining concrete protective measures – E.g. set up regulations regarding the disclosure of information within the company, or train employees on handling of secrets.
    • Introduction of IT-security system – Set up safe IT-security systems in order to prevent data loss.

    This information is for guidance purposes only and should not be regarded as a substitute for taking legal advice. Please refer to the full terms and conditions on our website.

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