NON-DISCLOSURE AGREEMENT (NDA)

Nowadays, technology has impacted greatly on bussiness activity. Technology helps businesses improve their communication processes, develop their network and build strong business relationships. However, besides a lot of advantages, technology.also creates many problem, especially information leakage. During cooperations time, the parties have to share and receive information from the partner or the.third parties in order to perform their obligation. If this important information is disclosed, businesses may have to deal with difficulty. Non-Disclosure agreement (NDA)

Therefore, Non-Disclosure agreement is the optimal solution that businesses can apply to protect their “assets” in business.transactions and share information securely. To help you better understand the regulations and principles related to “Non-Disclosure Agreement”  in.Vietnam, Law Plus would like to present some main points of law.

I. What is a “Non-Disclosure agreement” ?

Non-disclosure agreement (NDA for short) is an agreement in which two or more parties are obligated to keep cetain information.confidential and only share with third parties for general but limited purposes.

The NDA has many other names such as Confidentiality Agreement, Confidential Disclosure Agreement, Proprietary Information.Agreement, Security Agreement.

Clause 23, Article 4 of Law on Intellectual Property 2005 provides:

“Trade secret means information obtained from activities of financial or intellectual investment, which has not yet been disclosed and.which is able to be used in business.”

Trade secrets often involve different types of information such as:

– Technical and scientific know-how: product manufacturing formula, product’s technical structure, design…

– Commercial information: customer list, distributor system, business plan, advertising strategy…

– Financial information: price structure…

Due to the importance of these types of information, regulations relating to confidentiality aim to maintain and encourage.ethical standards and fair trade. Futhermore, they protect capital that businesses invested in developing their innovations which provide competitive.advantages both technically and commercially.

II. The importance of NDA

1. Promoting contract signing

Normally, two companies or individuals or entities sign a NDA when they consider a cooperation. They need to know the.processes used in each other’s business to assess potential business partnership before making a decision. In the event that negotiations fail, the.parties can still rest assured that the information they have shared is safe and not used to their detriment. Therefore, the NDA creates a basis.for the parties to learn, make assessments, analyze the market, make predictions.about future projects.

2. Preventing the risk of information leakage

In the process of business cooperation, the sharing of information between businesses is inevitable. When information about.customers, business strategies, etc. is leaked to the outside, businesses will suffer both financial and public relations losses, for example: loss of.profits due to damaged images, losing customers, partners, compensation for breached contracts, etc. NDA helps ensure that important information.is shared securely and minimize leaks through sanctions for violations.

3. Building trust in partnership

NDA develops confidence in partner cooperation, and thus the negotiations go smoothly and the parties perform their obligation.more easily. In addition, NDA also prevents theft, abuse, and misrepresentation of intellectual.property.

III. Type of NDA

1. Unilateral NDA

A unilateral NDA (or one-way agreement) involves two parties in which a party disclose certain information to the other party and.requires that party to keep it confidential for a number of reasons. Most confidentiality agreements fall into this category. Employee NDA requiring.new employees to keep information the company provides confidential is the most popular unilateral NDA. In this case, the employee will be the.only party to sign the agreement. In addition to protecting trade secrets, this type of agreement is also used for copyright protection. Private researchers.or researchers at universities sometimes have to sign NDA to conduct research.

2. Bilateral NDA

Also known as mutual NDAs or two-way NDAs, bilateral NDAs require both parties to disclose their confidential information to.each other. Both parties can limit how the other party will use and share their information.

Bilateral NDAs are commonly used in situations where parties are required to exchange a lot of private business information.during negotiations. These include corporate takeovers, joint ventures, and mergers and.acquisitions.

3. Multilateral NDA

Multilateral NDAs or multiparty NDAs involve three or more parties where at least one of them will disclose information to the other.parties. The party or parties will also require the other parties to protect that information from.further disclosure.

These agreements eliminate the need for separate bilateral or unilateral NDAs between two parties. For example, a single multilateral.agreement signed by three parties where each party intends to disclose information to the other two, instead of three separate bilateral.agreements.between the first and the second party, second party and third party and third party.and.first party.

IV. Vietnamese confidentiality regulations

According to Clause 2, Article 387 of the 2015 Civil Code: “When a party receives any secret information from the other party.during the process of entering into the contract, it must protect that information and may not use it for its own purposes or.other illegal purposes”.

NDA is also prescribed in many specialised laws such as:

– Labour Code 2019;

– Commercial Law 2005;

– Law on Intellectual Property 2005 (amended and supplemented in 2019).

Specifically:

1. Employee NDA

Clause 2, Article 21 Labor Code 2019 stipulates:

“If the employees’ job is directly related to the business secret, technological know-how as prescribed by law, the.employer has the rights to sign a written agreement with the employee on the content and duration of the protection of the business secret, technology.know-how, and on the benefit and the compensation obligation in case of violation by the employee.”

a) Form of agreement

In this case, NDA may be either a clause in a contract or a separate confidentiality agreement such as:

– Recorded in the labor contract or labor contract appendices. The parties sign in NDA from the beginning of the.employment relationship or during the working process.

– Establish an independent agreement or commitment.

– Agreement on information confidentiality clause in the contract is only made when there is an employment relationship (Not before.signing the labor contract or after the labor contract is terminated).

b) Contents of the agreement:

The content of the agreement on information security includes:

– The scope of confidential information, the criteria to determine the information to be confidential.

– Time and space of NDA: Depending on each specific case to determine the appropriate compliance time and space. The performance evaluation will be based on the balance of interests of the two parties in order to protect the information and competitive.advantages of the enterprise while ensuring the rights of employees.

– Commitments and compensation responsibilities of employees to consider the principle of compensation commensurate.with the damage, in addition to the method of prevention and handling for third parties when one party violates.the agreement.

– The reciprocal obligation of the enterprise to consider the interests of employees when signing and implementing information.confidentiality agreements. Employees are entitled to receive benefits commensurate with their commitments as the basis for enhancing.compliance with the agreement.

2. Trade secret NDA

Clause 4, Article 289 of the Commercial Law 2005 stipulates the obligations of franchisees: “To keep secret the franchised.business know-how even after the expiration or termination of commercial franchise contracts;”

Point b, Clause 1 of Article 45 of the 2018 Competition Law emphasised that prohibited unfair competition.practices is : “Disclosing or using trade secrets without consent of the owner”

In addition, Clause 1, Article 110 of the 2018 Competition Law provides:

“Any entity committing violation of competition law shall, depending on the nature and seriousness of their violations, be disciplined, incur.penalties for administrative violations or face a criminal prosecution; in case of damage to the interests of the State, legitimate.rights and interests of organisations and individuals, compensation must be paid according to the.provisions of law.”

When there is a case of infringement of a business secret. The aggrieved party has the right to request the infringing party to stop.the act. If the level of violation is serious, civil or criminal proceedings can be initiated. Because when negotiating a commercial contract, the two.sides have clearly specified the sanctions for infringing upon business secrets.

3. Intellectual property NDA

Sometimes inventors or companies must share a business idea, prototype of an innovative product, or confidential information.with third parties. They must disclose information to explore the possibility of manufacturing, designing, or commercialising a particular product in.partnership with another company when negotiating licensing agreements or when seeking financial resources to develop a product or implementing.a business plan. Therefore, in this case, a NDA will ensure the security of the information sharing process.between the parties.

Clause 1 of Article 199 of the Law on Intellectual Property 2005 stipulates: “Any organization or individual who commits an act of.infringement of the intellectual property rights of another organization or individual shall, depending upon the nature and seriousness of such.infringement, be dealt with by the application of civil, administrative or.criminal remedies.”

4. Consumer NDA

Article 6 of the Law on Protection of Consumer Rights 2010 stipulates:

“1. Consumers’ information shall be kept safe and confidential when they participate in transactions, use of goods or.services, except where competent state agencies require the information.

2. Where the collection, use and transfer of consumer information, the organizations or individuals trading goods.and/or services shall:

a) Notify clearly and openly the consumer of the purpose of the collection and use of consumer information before.such activities being done;

b) Use information in conformity with the purpose informed to consumers, and with the consent by.the consumers;

c) Ensure safety, accuracy, completeness during collection, use and transfer of consumer information;

d) Update or adjust by themselves or help consumers to update and adjust as the information is found to.be incorrect;

e) Only transfer consumer information to third parties upon the consent of consumers, except where.otherwise provided by law.”

5. Bank credit NDA

Clause 2, Article 14 of the Law on Credit Institutions 2010 provides:

“Credit institutions and foreign bank branches shall keep secret information relating to accounts, deposits, deposited.assets and transactions of their clients.”

V. Conclusion

The parties usually sign NDA prior to formal contract, so NDA itself may be a.separate agreement or a provision in.the contract to which the parties enter into depending on the stage and purpose of the parties.

The value of confidential information will determine the consequences when the parties discover a related party or.third party infringing, thus to ensure the legitimate rights and interests of the business or themselves. Therefore, you should carefully consider.the binding terms and the concept of “Information” in this clause to avoid unnecessary conflicts.

This is the analytical essay of LawPlus about Vietnam’s regulations on NDA. Law Plus’s professional and.experienced.lawyers are always ready to offer you the best assistance in the drafting good NDAs. To receive the most timely, quality, effective.and cost-effective.advice, please contact LawPlus via hotline +84 2862 779 399, +84 3939 30 522 or email info@lawplus.vn.

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