Introduction
A non-disclosure agreement (NDA) sets out which information is confidential, what the recipient may and may not do with it, and how long that obligation lasts. At the heart of the agreement is an allocation of risk: the disclosing party shares information that derives its value from being kept secret, while the receiving party may inspect that information but is restricted in its use. The value of an NDA only becomes apparent when something goes wrong, when information is leaked or used improperly. The starting point below is a one-way (unilateral) NDA in which one party discloses information and the other receives it; in a mutual NDA the same obligations apply reciprocally.
The structure of the agreement
The structure of an NDA follows the life cycle of the information. First it is established who the parties are and why information is being exchanged; then what counts as confidential; next what the recipient must refrain from doing and what it may do; then how long the obligation continues to apply and what happens to the information when it ends; and finally the clauses that make enforcement possible. In that order, each element builds on the previous one. The full structure may look as follows:
- Preamble: title, parties and recitals
- Definitions: confidential information
- Confidentiality obligation
- Exceptions to the confidentiality obligation
- Permitted use and purpose limitation
- Duration of the obligation
- Return or destruction
- Penalty clause
- Liability
- No licence or rights
- Choice of law and forum
Preamble: title, parties and recitals
The agreement opens with the title, the parties and the recitals. The parties are fully identified by their statutory name, Chamber of Commerce (KvK) number and registered address, and it is established which is the disclosing party and which is the receiving party. The recitals describe the background: what contact, transaction or cooperation makes the exchange of confidential information necessary. That background is not without consequence, because it determines the purpose to which the use of the information is later tied and serves as the framework for interpretation where the scope of a clause is disputed. A concretely described background prevents the agreement from being interpreted too broadly or too narrowly after the event.
Example recitals +
The undersigned: (1) [Disclosing party] ("Discloser");
and (2) [Receiving party] ("Recipient");
whereas the Discloser wishes to disclose confidential information to the Recipient in connection with [a possible cooperation / transaction], and the parties wish to set out the conditions for that disclosure, have agreed as follows:
The disclosing party has an interest in recitals that define the purpose narrowly, so that any use beyond it can readily be regarded as a breach; the receiving party has an interest in a background broad enough to cover ordinary internal deliberation and advice.
Definitions: confidential information
The definition of "confidential information" is the pivot of the entire agreement, because all the obligations hang on it. Two approaches are common. A broad definition covers all information shared in any form whatsoever, regardless of marking. A narrow definition is limited to information that is marked as confidential or that is confidential by its nature. The broad variant protects the discloser but is difficult to enforce; the narrow variant is sharper but places a marking burden on the discloser. A combination is often chosen: information that is marked, and information that should reasonably be understood to be confidential. The term "third party" is also best defined separately, because a breach often turns on whether information has been provided to a third party.
Example definitions +
"Confidential Information" means all information, in whatever form, that the Discloser provides to the Recipient and that is marked as confidential or that, by its nature or in light of the circumstances of its disclosure, should reasonably be regarded as confidential, including [technical data, financial information, customer data]. "Third Party" means any natural or legal person that is not a party to this agreement.
The disclosing party has an interest in a broad, unambiguous description and in placing the burden of proving an exception on the recipient; the receiving party has an interest in a defined description, so that not every communication received turns out to fall under the obligation after the event.
Confidentiality obligation
The core of the agreement is the recipient's obligation to keep the confidential information secret and not to disclose it to third parties. That obligation is decoupled from the question of whether the underlying cooperation goes ahead: even where the parties part ways, confidentiality continues to apply to information that has by then been provided. It is important that the obligation describes with sufficient precision which information it concerns, because a clause framed too vaguely is difficult to enforce in proceedings. Where trade secrets are at stake, the Trade Secrets Protection Act (Wet bescherming bedrijfsgeheimen) offers additional protection alongside the contractual clause.
Example clause +
The Recipient shall keep the Confidential Information strictly confidential, shall not disclose it to Third Parties and shall exercise at least the same care as it applies to its own confidential information, with a minimum of reasonable care. This obligation shall remain in force regardless of whether the cooperation or transaction referred to in the recitals comes about.
The disclosing party has an interest in a broadly framed obligation that also continues after the end of the relationship; the receiving party has an interest in an obligation confined to genuinely confidential information, so that ordinary internal consultation does not already amount to a breach.
Exceptions to the confidentiality obligation
Set against the obligation are the standard exceptions, which determine what information falls outside confidentiality. The usual ones are: information that was already public or becomes public through no act of the recipient, information that the recipient already lawfully knew, information that it independently developed, and information that must be provided pursuant to a statutory obligation or a court order. For that last exception it is usually stipulated that the recipient informs the discloser in advance, so that the latter can, if it wishes, oppose the disclosure. Clear exceptions prevent a statutory obligation or the recipient's own prior knowledge from inadvertently giving rise to liability.
Example clause +
The confidentiality obligation does not apply to information which the Recipient demonstrates (a) was already public or has become public through no act of the Recipient, (b) was already lawfully known to it without any obligation of confidentiality, (c) was independently developed by it without use of the Confidential Information, or (d) must be disclosed pursuant to statute or a court order, in which case the Recipient shall inform the Discloser in advance to the extent permitted.
The disclosing party has an interest in narrowly framed exceptions whose applicability the recipient must prove; the receiving party has an interest in watertight exceptions, in particular the ability to comply with a statutory disclosure obligation without liability.
Permitted use and purpose limitation
In addition to confidentiality, an NDA restricts the use of the information. The recipient may use the information solely for the purpose described in the recitals and not for its own commercial advantage or for other purposes. This purpose limitation is at least as important as confidentiality itself, because information can be kept carefully secret and still be used improperly. It is often regulated to whom, within its own organisation, the recipient may provide the information according to the need-to-know principle: directors, employees and advisers who need the information for the purpose, with the recipient warranting that those persons are bound by the same confidentiality. This prevents the protection from being diluted once the information enters the organisation.
Example clause +
The Recipient shall use the Confidential Information solely for the purpose described in the recitals and shall provide it only to those directors, employees and advisers who need to take note of it for that purpose. The Recipient shall impose the same confidentiality obligations on those persons and warrants their compliance.
The disclosing party has an interest in a strict purpose limitation and a narrow circle of persons granted access; the receiving party has an interest in a workable circle that includes its advisers and the staff involved, so that the cooperation is not rendered practically impossible.
Duration of the obligation
The duration of the confidentiality obligation is independent of the term of the underlying relationship. Two elements are regulated: the period during which information may be exchanged, and the period during which confidentiality continues to apply after that. For ordinary business information a term of a few years after termination is customary; for information that derives its value from being kept secret, such as trade secrets, an unlimited duration is sometimes stipulated for as long as the information remains secret. An unlimited duration offers no absolute certainty, because the protection in fact ends as soon as the information loses its confidential character and there is nothing left to protect.
Example clause +
The obligations under this agreement shall apply during the cooperation and for a period of [five] years after its termination. In respect of information that qualifies as a trade secret, the obligations shall remain in force for as long as that information retains its confidential character.
The disclosing party has an interest in a long or indefinite duration, linked to the information remaining secret; the receiving party has an interest in a concrete end date, so that liability does not still loom years later over information that has by then become outdated or generally known.
Return or destruction
On the end of the relationship, or on the discloser's first request, the recipient is required to return or destroy all confidential information, including copies and derivative documents. In practice an exception is included for copies that the recipient must retain under legislation or regulation and for routine back-ups that cannot be removed without disproportionate effort; the confidentiality obligation then continues to apply to those copies in full. Written confirmation of the destruction is often stipulated. This provision closes the practical gap that remains after the cooperation ends, because without an obligation to return, the information physically stays with the recipient, even though the recipient may no longer use it.
Example clause +
Upon the Discloser's first written request, and in any event upon termination of the cooperation, the Recipient shall return or destroy all Confidential Information and all copies made of it, and shall confirm that destruction in writing. Copies that the Recipient is required to retain under mandatory law or that are held in routine back-ups may be retained subject to continuing confidentiality.
The disclosing party has an interest in an unconditional obligation to return or destroy with written confirmation; the receiving party has an interest in an exception for statutory retention obligations and for back-ups that cannot be removed without disproportionate effort.
Penalty clause
Because the loss caused by a breach of confidentiality is difficult to prove and to quantify, a penalty clause is almost always included: a fixed amount per breach, possibly increased by an amount for each day the breach continues. The penalty clause (Section 6:91 DCC) relieves the discloser of the burden of demonstrating concrete loss. Its relationship with the statutory rules matters: under Section 6:92 DCC a penalty in principle takes the place of damages, unless it is expressly stipulated that the discloser may in addition claim the actual loss. Under Section 6:94 DCC the court may reduce a stipulated penalty if fairness manifestly so requires. If the clause appears in general terms and conditions, it may be annulled under Section 6:233 DCC where the other party was not given a reasonable opportunity to take note of it; including it in the NDA itself avoids that debate.
Example clause +
In the event of a breach of any obligation under this agreement, the Recipient shall forfeit to the Discloser an immediately payable penalty of €[50,000] per breach, increased by €[2,500] for each day that the breach continues, without prejudice to the Discloser's right to compensation for the loss actually suffered to the extent that it exceeds the penalty.
The disclosing party has an interest in a high penalty that cumulates with full damages and that is included in the agreement itself; the receiving party has an interest in a moderate amount, sharply defined per breach, and in excluding cumulation with additional damages.
Liability
The liability provision governs what applies alongside or on top of the penalty clause. The discloser generally wants the recipient to compensate the full loss and for liability for a breach of confidentiality to fall outside any limitations. The recipient, by contrast, wants a cap and the exclusion of indirect or consequential loss. It is also established here whether the discloser warrants the accuracy of the information provided: it is customary to provide expressly that the information is provided "as is" and that the discloser gives no warranties as to accuracy or completeness, so that the exchange of information does not itself create liability for the discloser. The relationship between penalty and damages is kept consistent with the penalty clause here in order to avoid contradiction.
Example clause +
The Confidential Information is provided "as is";
the Discloser gives no warranties as to its accuracy or completeness and is not liable for the Recipient's use of it. The limitations of liability set out in this agreement do not apply to loss resulting from a breach of the confidentiality obligations.
The disclosing party has an interest in an "as is" disclosure without warranties and in excluding breaches of confidentiality from any limitation of liability; the receiving party has an interest in a cap and in the exclusion of indirect and consequential loss.
No licence or rights
The sharing of confidential information must not be construed as a transfer of rights. For that reason it is expressly provided that all intellectual property rights and other rights in the information remain with the discloser and that the recipient acquires no licence or other right of use, other than the limited right to use the information for the agreed purpose. Without this provision the recipient could argue that, by lawfully receiving the information, it is also entitled to exploit it more widely. The clause confirms that the NDA governs access to information only and confers no right whatsoever in the underlying knowledge, technology or data.
Example clause +
All intellectual property rights and other rights in the Confidential Information remain vested in the Discloser. This agreement grants the Recipient no licence or other right in the Confidential Information, other than the limited right to use it for the agreed purpose.
The disclosing party has an interest in an unambiguous confirmation that no right passes; the receiving party has an interest in the certainty that the agreed use within the purpose does not constitute an infringement.
Choice of law and forum
Finally, it is determined which law applies and which court has jurisdiction. For an NDA between Dutch parties, Dutch law and a designated Dutch court are the obvious choice. In cross-border relationships the choice is essential, because the enforceability of confidentiality and a penalty differs from one legal system to another. For urgent situations it is often expressly left open for the discloser to seek preliminary relief proceedings (kort geding) or an interim measure, because a prohibition on further dissemination in the event of a threatened breach is often more effective than subsequent proceedings for damages. A watertight choice of forum prevents enforcement from becoming bogged down on the preliminary question of which court may rule.
Example clause +
This agreement is governed by Dutch law. Disputes shall be submitted to the competent court in [district court], without prejudice to the Discloser's right to seek an injunction against further disclosure or dissemination in preliminary relief proceedings (kort geding) or by way of an interim measure.
The disclosing party has an interest in a forum where a prohibition can be obtained quickly and the penalty is readily enforceable; the receiving party has an interest in a predictable forum that is accessible to it, especially in cross-border relationships.