What is a non-disclosure agreement (NDA)? Explanation and use

What is a non-disclosure agreement (NDA)? A non-disclosure agreement (NDA) is the commonly used English term for a confidentiality agreement: a contract in which parties agree not to share or use confidential information outside of a pre-agreed purpose. In the Netherlands, this same document is called a confidentiality agreement or confidentiality declaration. You primarily use the English term when doing business with a foreign or English-speaking party, or when the contract is drafted in English.

The short answer

• What: a contract that protects confidential information against sharing or use outside an agreed purpose.
• Term: NDA is the English term; the Dutch equivalent is the confidentiality agreement.
• When: before you share sensitive information with an investor, supplier, prospective buyer, or business partner.
• Two forms: one-way (one party shares) or mutual (both parties share).
• International: with a foreign party, you explicitly stipulate choice of law and choice of forum.

What is a non-disclosure agreement (NDA) in practice?

An NDA specifies which information is confidential, what the recipient may and may not do with it, how long the confidentiality lasts, and what the consequences are in the event of a breach. Legally, it is a standard contract under Dutch law: a breach constitutes a default within the meaning of Article 6:74 of the Dutch Civil Code. To avoid evidentiary problems, a penalty clause is almost always included (Articles 6:91 to 6:94 of the Dutch Civil Code), so that in the event of a leak, you do not first have to demonstrate your concrete damages.

The content is functionally identical to the Dutch non-disclosure agreement. The difference lies in the language and international usage. If you work with a German supplier or an American investor, an English-language NDA is more logical than a Dutch document that they cannot read.

NDA or confidentiality agreement: is there a difference?

In terms of content, no. An NDA and a confidentiality agreement regulate the same thing. The choice of the English term is primarily practical: international parties are familiar with the abbreviation NDA, and in cross-border cooperation, an English-language contract is often the common language. However, note that an English-language contract does not automatically fall under foreign law. You determine which law applies yourself in the contract.

One-way NDA versus mutual NDA

There are two main forms, and the choice determines the balance of the contract.

• One-way (unilateral): only one party shares confidential information and only the recipient is bound by confidentiality. Common when you present an idea or technology to a potential customer.
• Mutual: both parties share information and are both bound. Common in an equal partnership, a joint venture, or an acquisition exploration where figures are exchanged back and forth.

If you are presented with a one-way NDA while you are both sharing sensitive information, ask for a mutual version. Otherwise, you will be bound, but the other party will not.

Choice of law and choice of forum in cross-border use

As soon as an NDA is concluded with a foreign party, two clauses are crucial. Without these agreements, a dispute could end up in another country and under unknown law.

• Choice of law: which law applies to the contract. Within the EU, the Rome I Regulation (Regulation (EC) No 593/2008) allows parties to choose this freely. Stipulate that Dutch law applies if you wish to be able to litigate in the Netherlands on familiar territory.
• Choice of forum: which court has jurisdiction. Pursuant to Article 25 of the Brussels I-bis Regulation (Regulation (EU) No 1215/2012), you can designate a competent court within the EU, for example the court of your own place of establishment.

Without a choice of law and forum selection, the applicable law and court are determined on a case-by-case basis in the event of a dispute. This makes enforcement slow and expensive, precisely at a time when speed matters.

What else belongs in an NDA?

• Definition of confidential information: as specific as possible, with exceptions for knowledge that is already public or self-developed.
• Purpose limitation: for what the information may be used.
• Duration of confidentiality: often three to five years after the end of the contact.
• Penalty clause: a fixed amount per violation, possibly per day that the violation continues.
• Return or destruction: what happens to documents afterwards.

An SME example: a software company from Eindhoven wanted to have its source code reviewed by a development partner in Berlin. They signed a mutual NDA in English, governed by Dutch law and with the District Court of East Brabant as the competent forum. When the German party later released a competing product, the company was able to bring the case before the court in the Netherlands and invoke the penalty clause without first having to calculate the exact damages.

Honest recommendation

For a simple situation involving a Dutch party and a standard template, you do not always need a lawyer. A solid confidentiality agreement using a reliable template is often sufficient if both parties are acting in good faith and the interests are limited. However, do have an NDA reviewed as soon as a foreign party, high interests, or technology is involved. In such cases, the definition of confidential information, the penalty clause, and especially the choice of law and forum carry significant weight. An incorrectly chosen forum can leave a leak unpunished because enforcement abroad becomes too expensive.

You can read more about this contract via the non-disclosure agreement (NDA), and about drafting and outsourcing via drafting an NDA and having an NDA drafted.

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