A non-disclosure agreement (NDA) is one of the most common ways to protect information exchanged in business relationships against disclosure. But is entering into one always the best option for a business? What other methods of protecting information does Polish law provide?
When someone says at a meeting, 'We should probably sign an NDA', we know the discussions are getting serious. Confidentiality agreements are part of business etiquette and one of the first tests of our partners' intentions and motivations. Dealing with this usually takes little time: a few days at most, or even a few hours, particularly if the parties or their advisers are familiar with sound NDA drafting practice.
But what if we cannot agree the wording of a confidentiality agreement or, worse, the other party has no interest in signing an NDA or refuses as a matter of principle, as many venture funds do? Must we then rely solely on the counterparty's reputation? Are there other ways to protect sensitive information or the 'million-dollar idea' in which we have such faith?
When business-critical information is shared during negotiations…
Quite some time ago, in 2003, an interesting legal mechanism was introduced into the Polish Civil Code, although it has still not gained much popularity. It allows information disclosed to a counterparty during negotiations to be protected. Article 722 of the Civil Code provides that a unilateral stipulation of confidentiality alone obliges the recipient not to disclose the information or pass it to third parties. Nor may the recipient use the information for its own purposes without our consent.
This allows us to protect information of widely varying content and character, including information that is not strictly a trade secret. It may concern technology, commercial or market matters, finance, organisation and management, and so on. The key is that it must not be generally known: accessing or producing it must require substantial resources, and its disclosure or use must be capable of harming our interests, causing us loss or providing unjustified benefits to the recipient.
It appears that this mechanism can even protect 'softer' information, such as original business-model or product concepts. A stipulation of confidentiality may cover information in a business plan or even an investment teaser. These legal instruments are also useful for protecting the 'idea' at the heart of a copyright work which, as a pure concept, does not itself enjoy copyright protection: copyright protects only the form of expression, not ideas.
Not only damages, but also recovery of benefits
What happens, then, if the other party breaches its confidentiality obligation or uses the information for its own purposes? Above all, we may require the counterparty to compensate us for the loss we have suffered, including lost profits. Since that would be insufficient in many cases, we also have a claim for the surrender of benefits obtained by the party that breached its obligation and disclosed or used the information for its own purposes.
It should also be mentioned that the obligation not to disclose or use information supplied subject to a stipulation of confidentiality does not expire when negotiations end, a contract is concluded or that contract terminates. It is also irrelevant whether the negotiations resulted in a contract or ended without agreement. The obligation is indefinite: the recipient cannot unilaterally release itself from the prohibitions described above.
The law does not always protect us: a word on exclusions
There are also limitations. For example, Article 722 of the Civil Code does not apply to information supplied during a tender or an offer process if there are no negotiations between the parties, even by correspondence. Moreover, if we choose to make cold calls or send unsolicited emails, this is never the right moment to disclose sensitive information. Merely making contact and inviting discussions is considered insufficient to protect confidential information if the other party does not respond to our proposal.
Despite certain legal controversies, which we will discuss another time, a stipulation of confidentiality is a very simple and useful solution when circumstances mean that we do not wish, or are unable, to protect our interests through a non-disclosure agreement (NDA).
