A confidentiality clause is a contractual obligation not to disclose confidential information or use it for other purposes. In our practice, we see confidentiality clauses that look robust but prove unenforceable in the event of a dispute. Overly broad definitions, indefinite durations, or the absence of a penalty clause turn them into paper tigers. We design clauses with a definition, duration, limitation, and enforcement mechanism — that do work.
What is the legal problem?
Confidentiality is only effective if it is clear what is secret, for how long, for what purpose, and with what consequences in the event of a breach. Rules vary internationally. In the EU, Directive 2016/943 applies; in the United States, the Defend Trade Secrets Act 2016; and in China, the Anti-Unfair Competition Law. An overly broad clause is moderated or not recognized. A clause that is too narrow offers no protection.
What does the law say?
Within the EU, Directive (EU) 2016/943 on the protection of trade secrets applies. In the Netherlands, this is implemented in the Trade Secrets Protection Act (1 May 2018). Article 1 defines a trade secret as information that is secret, has commercial value, and for which reasonable security measures have been taken. Articles 5 et seq. provide civil law remedies: injunction, damages, destruction of infringing products.
A contractual clause reinforces this statutory protection. Penalty clauses follow Articles 6:91-94 of the Dutch Civil Code. For criminal liability regarding the violation of trade secrets by employees, Article 273 of the Dutch Criminal Code applies.
What risks do companies face?
Excessively broad confidentiality is not upheld by judges. An overly narrow clause offers insufficient protection. Indefinite terms are often invalid in France and Belgium. Without a penalty clause, enforcement is unattractive due to the burden of proof of damages under Article 6:74 of the Dutch Civil Code. Proving a violation is often difficult without clear definitions and logging agreements. The loss of trade secrets can be irreversible.
Practical example from our practice
We advised a Dutch scale-up that shared confidential product information with a potential Indian joint venture partner. The NDA contained a vague definition and no penalty. The partner used the information for its own product. Demonstrating damages before the Indian court proved virtually impossible. Upon renegotiation, we incorporated: defined categories of confidential information, a predetermined penalty of €250,000 per violation, and NAI arbitration in The Hague. In the event of a subsequent violation, this resulted in full enforcement within eight months.
What can you do?
Clearly define confidential information and provide examples. Determine the purpose and duration (often three to five years for general information, longer for technical). Add obligations regarding access, copies, and return. Combine with a penalty clause under Section 6:91 of the Dutch Civil Code. Align choice of law and dispute resolution for effective enforcement. See also our article on International NDAs: what should you look out for?