Non-disclosure agreements NDA, Protection of trade secrets under German law

The 4 most common mistakes in non-disclosure agreements

A contribution by German lawyer and specialist in commercial and corporate law Dr. Ronny Jaenig, LL.M. (Durham), Berlin, Germany

Non-disclosure agreements (NDA) are in fashion. According to the author's observations, the German market is currently literally flooded with agreements that are supposed to protect alleged trade secrets under the GeschGehG. Read here why these agreements are often flawed and therefore frequently miss their target.

Definition of trade secret under the German Trade Secrets Act (GeschGehG)

According to § 2 of the German Trade Secrets Act (Geschäftsgeheimnisgesetz), information is a trade secret only if it is

•   is secret,
•   (therefore) is of economic value,
•   is the subject of reasonable secrecy measures by its rightful owner,
•   there is a legitimate interest in keeping it secret.

Mistake #1 - Information not a secret

In many cases, the information in question is not secret. Secret implies that the information is known only to a narrowly defined group of people.

If a company, whether a partnership or a limited liability company (GmbH), has only a few employees and most of them know the company's customers, it may be difficult to classify a company-internal customer list as secret: Everyone knows!

Mistake #2 - No economic value of the information

Experience shows that many companies overestimate the economic value of information that they themselves consider to be confidential.

Why this is a legal problem? Well, if the information has no economic value, then behavioral obligations on the part of the contractual partner who is(are) to be obligated to maintain secrecy may be unreasonable. If non-disclosure agreements are designed in such a way that they have the character of a non-compete clause, one does not have to wonder about an ineffectiveness!
Mistake #3 - No non-disclosure measures

To be a trade secret, you also need appropriate internal company measures (keyword: compliance!). If something is confidential, it should at least say confidential! Conversely, a database accessible to all employees in the cloud means: feel free to use it!

Mistake #4 - Underestimation of the German "AGB" law (law on general terms and conditions)

One of my undergraduate civil law professors used to say, "Don't underestimate the law on general terms and conditions!". He was right. Insofar as NDA clauses are intended for multiple use, one finds oneself in the law of general terms and conditions and thus in sections 305 ff. German Civil Code. To be noted: In Germany, the law on general terms and conditions restricts the party's freedom of contract.

It follows, first of all, that provisions that deviate from the basic legal structure - which is specified by the Trade Secrets Act - are subject to the risk of invalidity. It also follows that ambiguities are to the detriment of the user of the confidentiality agreement.

There is a big question mark attached to endless catch-all clauses, provisions on contractual penalties and non-exclusive confidentiality obligations!

What shall we (you) do?

Well, you should not take an NDA (confidentiality and non-disclosure agreement) sight unseen and rather think twice about the content. This applies in all situations and to all parties involved, i.e. as an employee, as a managing director or board member, as a know-how carrier, as a startup/founder or investor, participant in an M&A transaction or as an "ordinary" company. It is worth it!

For further information on the topic please see our page on NDAs in M&A transactions.