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China Non-disclosure Agreement

A non-disclosure agreement (NDA) in China, also known as a confidentiality agreement (CA), confidential disclosure agreement (CDA), proprietary information agreement (PIA), or secrecy agreement, is a legal contract between at least two parties that outlines confidential material, knowledge, or information that the parties wish to share with one another for certain purposes, but wish to restrict access to or by third parties. It is a contract through which the parties agree not to disclose information covered by the agreement. An NDA creates a confidential relationship between the parties to protect any type of confidential and proprietary information or trade secrets. As such, an NDA protects nonpublic business information.

What is NDA For?


NDAs are commonly signed when two companies, individuals, or other entities (such as partnerships, societies, etc.) are considering doing business in China and need to understand the processes used in each other's business for the purpose of evaluating the potential business relationship. NDAs can be "mutual", meaning both parties are restricted in their use of the materials provided, or they can restrict the use of material by a single party.

It is also possible for an employee to sign an NDA or NDA-like agreement with an employer. In fact, some employment agreements will include a clause restricting employees' use and dissemination of company-owned "confidential information."

Non-Disclosure Agreements (“NDAs”) often get no respect. Business persons may plunge into negotiations, revealing confidential information with no agreement in place, or Legal may issue the same form agreement in every case, as if one-size-fits-all. Well, like any contract, the NDA can provide vital protection, but should be drafted with care. Here are 10 tips to consider.

Ten Things to Consider for a NDA to be Used in China


1. Nature of the Obligation. Naturally, the heart of the China NDA is language prohibiting one party from wrongfully using or disclosing certain information received from the other. The agreement should require the recipient to use at least the same degree of care that it would use to protect its own confidential information, but at least a reasonable degree of care.

2. Mutual v. Unilateral. Legal should inquire with Business to learn what types of information will be disclosed by each party. Obviously, the disclosing party wants stronger protection; the receiving party wants fewer restrictions. Nonetheless, in almost every case each party will disclose some sensitive information, so it almost always makes sense to include mutual confidentiality obligations.

3. Protected Material. To protect Confidential Information one must first define it. Often the NDA gives examples, such as “technical, financial and business information” and states that it may be in oral, written, physical or electronic form. It may be defined as anything that should “reasonably be deemed confidential” or may grant protection only if the information is marked as confidential.

4. Marking Requirement. The receiving party may insist upon a marking requirement, but the disclosing party may reject such a requirement, as some employees or agents may fail to mark before disclosing and some information cannot easily be marked. As a compromise, one can state that Confidential Information must be marked as such, or identified as confidential in a subsequent writing.

5. Carved-Out Exceptions. The exact wording may vary, but it’s only fair that certain types of sensitive information are excluded, such as information available to the general public, or previously known, independently developed or rightfully received by the recipient, through legal means.

6. Permitted Use. The NDA should state that Confidential Information may be used only for a particular purpose, such as exploring the possibility of a business relationship between the two parties, and no other purpose. Of course, the terms of that relationship will be laid out in a separate agreement.

7. Permitted Disclosure. NDAs typically contain an exception, permitting disclosure by the recipient to its attorneys, accountants or employees who have a legitimate need to know or in response to a court order, or the like. Counsel should make sure the legitimate need to know requirement is explicit. One may also insist that prior notice may be required before any disclosure and any third-party recipients must agree to confidentiality obligations at least as strict as those stated in the NDA.

8. Duration of Obligation. It’s probably best to state two terms in the Chinese NDA. First, state a term for the entire NDA, because a contract with no stated term is often found to be terminable at will. Then, the confidentiality obligation may be described as lasting, “For the Term of this Agreement and __ years thereafter.”

9. No Warranties/As-Is. While it has nothing to do with confidentiality, it may be prudent to state in the NDA that all information is disclosed “As Is” and without warranties. Such language may not ward off legitimate claims for fraud or concealment, but may give some protection against unmerited claims.

10. Remedy for Breach. The China NDA should state that in the event of a breach monetary damages would not be sufficient and the parties agree injunctive relief is proper. Heck, even injunctive relief would not be sufficient in most cases, but certainly it seems critical in most cases of wrongful use or disclosure.

Questions to Ask for a NDA

What is an Solo Non-Disclosure agreement?


A Solo or Individual NDA is an agreement between at least two parties involving sharing of confidential material, knowledge, or information and under which ONE of the parties agrees not to disclose any information or knowledge he comes into knowledge of.

What is a mutual NDA?


This is an agreement between at least two parties involving sharing of confidential material, knowledge, or information and under which BOTH the parties agrees not to disclose any information or knowledge they comes into possession in course of their interaction or business requirement.

How do I know if I need an NDA?


If your business or trade involves certain information or knowledge base which is integral to its survival or profitable running, they will need protection from coming in public or open domain. However, compulsions of business usually require that you share these information or knowledgebase with associates, agencies or employees. If you are an individual, entrepreneur, an expert, freelancer or an employee, you will need such a protection and hence an NDA.

Where is an NDA used?


Chinese NDAs are commonly signed when two  individuals, or other entities (such as partnerships, societies, etc.) are considering doing business and need to understand the processes used in each other’s business for the purpose of evaluating the potential business relationship. NDAs can be "mutual", meaning both parties are restricted in their use of the materials provided, or they can restrict the use of material by a single party. It can also be from one side (solo or unilateral or individual).

It is normal for an employer to ask an employee to sign an NDA or NDA-like agreement with an employer as an employee has to continuously interact with privileged information.

When should I ask someone to sign an NDA? Is it Important?


Whenever you believe you are going to enter a situation that will involve you disclosing proprietary information such as trade secrets, business strategy or yet-to-be-implemented ideas, you will want to have the receiving party sign a Non-Disclosure Agreement (NDA).

One should ideally do this before any disclosure occurs. And if one wants to be extra-safe, he/ she should make sure to get professional help (like China lawyer Blog) or use the correct verbiage/ terminology/ legally tenable language such as “You will receive, and have already received confidential information relating to and agree to keep this information strictly confidential and not to disclose it to any third party under any circumstances except with the express permission of you or your company.” This allows for the protection of information that the receiver may have received prior to signing the NDA—a situation that occurs more often than it should.

Would I not put off someone off by asking someone to sign an NDA?


While one is running a profitable business, he or she will need protection from leaking of confidential business material and successful business practices from being publicly revealed. One should not worry about putting someone off by asking him or her to sign an NDA in any situation where one is warranted—it is standard business practice and shows that you take your property rights seriously. People understand this and will respect your decision.

How does an international NDA work?


Any international deal tends to fall under the umbrella of private contract law, or basically the written agreement between the two parties of an agreed region.  Most NDAs include a choice of law, or "governing law," provision.  This would apply to an international NDA.  The bigger issue is dispute resolution since a party from one country doesn't want to be dragged into court in a country far away.  So the answer is usually international arbitration by any one of the many organizations that provide such services and suitable wording to this effect. China lawyer Blog while making an NDA for you takes care of such intricacies.

How enforceable is the non-compete clauses?


In India, such restrictions have been frowned upon by courts. However, if a reasonable time is incorporated for the immediate protection of business interests, then it usually works. Besides the time-limit on the non-compete, you would also have to look at the geographical reach, and the extent to which the non-compete extends (is it current customers, all potential customers, anybody at all) to determine whether the clause is legal. We at China Lawyer Blog help you understand this.

How enforceable is a NDA?


Generally, China NDAs are enforceable and forms part of usual business and individual practice. One should be careful, however, as the answer also largely depends on the language of the agreement. We at China Lawyer Blog include the specificity of the language in the agreement describing what information is protected. Some courts find that overly vague or ambiguous language can be unenforceable especially in an employment context where courts are careful not to unfairly restrict an employee's ability to make use of one’s general skill, experience or knowledge.  Another factor could be whether the information was truly confidential and any efforts beyond the agreement that the employer takes to ensure confidentiality.  Other factors could include limitations on the length of time or geographical distance from the employer. Though time and geography more commonly affect non-compete agreements they could also play a role in the enforceability of an NDA. China Lawyer Blog takes care while incorporating such clauses.

Are NDAs enforceable overseas?


Yes, they are, as long as they are well drafted by China contract lawyer . However, China Lawyer Blog, in its transparency, recommends that you consider these facts:-
• Even if an NDA is enforceable overseas, the likelihood that you will incur the expense to bring an enforcement action there is modest, at best.
• Nevertheless, a Chinese NDA can be valuable as a means of both moral persuasion and legal threat.
• Even more important than an NDA, however, is an agreement by which the developer assigns to you all rights, including all intellectual property rights, in whatever he creates for you.

 

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