Non-Disclosure Agreement

What Works and What Doesn’t

How do you think Coca Cola continues to keep its formula for over 130 years? Coca Cola’s formula secrecy relies massively on non-disclosure agreements, aka NDA, with its employees.

Though Thailand’s trade secret law offers indefinite protection of what the law considers ‘trade secret’[1], your business may want to expand the scope of information you want to protect by covering the kind of information not explicitly recognized as ‘confidential’ or ‘trade secret’. And you may do so through an NDA.

What Is NDA?

An NDA is an agreement that defines what information the recipient needs to keep secret and how long the obligation of secrecy shall last. Violation of an NDA normally leads to compensation claimed by the disclosing party. The degree of success that the party can claim for damages, however, relies heavily on how the NDA is drafted and later perceived by the court.

An NDA can be a standalone agreement or it can be embedded in any agreement, for example, employment agreement, share purchase agreement or joint venture agreement. In the pre-deal phase of an M&A, an NDA makes it possible for the parties to exchange in-depth and/or non-public business information to see if they would be a perfect fit as business partners, even before any definitive agreement is signed. This pre-deal exchange of information may not be possible without an NDA.

What Works in an NDA and What Doesn’t

It is important to ensure that your NDA is enforceable in the jurisdiction applicable to it. In Thailand, a lot of NDAs are made but only a handful of those go to court. We could learn how the court holds which elements of an NDA are considered fair or have legitimate business purposes, so we can design our NDAs appropriately.

(a) What Works

Thailand’s Supreme Court upheld that various factors should be used to consider whether an NDA was enforceable, and therefore not void. In the Supreme Court’s decision No. 3892/2557, an NDA was made between an employer and its employee that the employee shall keep confidential certain qualities of the employer’s products and information relating to customers for a period of two years, post-employment. A commercial aspect, e.g. the competitive advantage that the former employer’s business gains from keeping the secrecy of the confidential information, is one of the primary reasons that the court considered. In this case, the former employer claimed that the competitive advantages to their commercial success included the knowledge of the products as well as of the customers. Additionally, the employee was a direct contact to the customers and was responsible for providing the customers information relating to qualities of products received through trainings provided by the employer. The NDA stated that a breach of confidentiality would render the employee liable to actual damages but it shall not be less than THB 100,000.

Considering the factors listed, the court upheld that the NDA did not violate public order and good moral (which would make any contract void); therefore, the NDA was enforceable and the employee was liable to pay the former employer damages. The court, however, can reduce the contractual penalty as it considers appropriate for the case.

(b) What Doesn’t

Determining the ‘confidentiality information’ is one of the most essential parts of an NDA. You are free to define what is considered confidential information due to the specific nature of your business. What we think would be beneficial, therefore, is what not to do in an NDA.

Not Everything Is Confidential

An NDA commonly excludes the following information as confidential. If you are to sign an NDA where none of the following types of information is excluded, it is advised that you ask for a revision before you sign it.

Public Information, or the information that is already publicly available or is later made known to the public through no fault of the recipient
Information developed by the recipient without relying on the confidential information
Information disclosed by the recipient by court’s order or as legally required by law

Contractual Penalty Not Comparable to the Actual Damage

Certain laws in Thailand, for example, the consumer protection and product liability laws, the trademark law or the personal data protection law allow the court to determine ‘punitive damages’ in accordance with specific circumstances of the case, e.g. the damages caused, the financial status of the person liable or the benefits that such person has received from the violation of the law.

An NDA (not including trade secret where punitive damages are allowed by law) is a contract where the court can reduce the contractual damages (meaning the damages already agreed in the contract) to the amount reasonable and comparable to the actual damages considering all the relevant circumstances, as the court considers appropriate. It is therefore prudent for you to be able to defend yourself in court by presenting supporting evidence as to why the amount you claim is justifiable, and lack of which may harm your business.

Final Message

You may wonder why Coca Cola’s secret formula is protected for more than 130 years, while Thai court renders two-year secrecy (e.g. post-employment) reasonable. This is because, according to Coca Cola’s website, Coca Cola’s formula is considered ‘trade secret’ where the protection is indefinite. Other than those protections offered by the law, an NDA is a crucial mechanism to outline what should or should not be done, how things should be managed, as well as remedies.

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Footnote

[1] According to Thailand’s Trade Secret Act, B.E. 2545, “trade secret” means trade information not yet publicly known or not yet accessible by persons who are normally connected with the information. The commercial values of which derive from its secrecy and that the controller of the trade secrets has taken appropriate measures to maintain the secrecy.

For further information, please visit: https://msclaw.co.th/article-nda-what-works-and-what.../

Non-Disclosure Agreement What Works and What Doesn’t