How to prosecute a non-disclosure agreement (NDA) violator?
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Non-disclosure agreements (NDAs) are typically entered into between a company and a freelancer or sole proprietor. We intentionally do not use the terms "employer" and "employee" because in the case of an employment agreement and official employment, the employer and employee are not the subjects who can enter into NDAs, but rather they work in accordance with labor laws that regulate confidentiality.
In Ukraine, the issue of such agreements is not fully regulated by law, and it is often very problematic to recover damages caused by the disclosure of confidential information. To make the recovery real, it is necessary to take care of the proper responsibility of the perpetrator of the disclosure of confidential information, which needs to be specified in the contract, and the corresponding conditions under which the responsibility arises. In this article, we discuss how to safeguard your business by drafting a robust NDA contract, and what to do in the event of a violation.
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Staying ahead: properly executing an NDA
Confidential information can range from a company's founding documents and organizational structure to any information related to its business activities that is not publicly available, such as financial and tax reports.
However, we have had clients who filed a lawsuit for the disclosure of a company's financial results, but the lawsuit was dismissed because the court considered that there was insufficient evidence to recognize this information as confidential for that particular company. The court pointed out that the legislature had only provided a framework for possible confidential information, and that such confidentiality needed to be explicitly defined.
To address this issue, we recommended that our clients issue an order within the company that clearly specifies what information is considered confidential. Such an order was sufficient for the court to recognize the financial reports as confidential information in the company, and in the second case, the lawsuit was successful.
To prevent such a situation, it would be wise to develop an NDA agreement for working with employees in a timely manner. For more detailed recommendations on how to properly execute such an agreement, please see our advice here.
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How does an NDA affect future liability?
One important aspect of signing an NDA is the clarity of its language regarding what constitutes the disclosure of confidential information and the corresponding consequences for such disclosure.
The consequences for breach of an NDA should align with the logic of possible sanctions for violation of civil or commercial codes in Ukraine. As such, the liability for breach of an NDA may include:
- a fixed penalty (the amount of which can vary, but should correspond to the actual amount of possible damages);
- compensation for actual losses incurred by the injured party as a result of the breach.
Both types of penalties can be included in the NDA as either combined or separate remedies.
According to the court practice, it is necessary to establish a causal relationship between the disclosure of confidential information by the perpetrator and the damage caused by it. Therefore, it is important that the amounts of liability are realistic and correspond to the possible losses incurred, if liability is chosen in the form of a fixed penalty amount.
If liability for damages is specified in the contract, it is necessary to provide evidence in court of the dependence of the damage caused on the disclosure of confidential information.
We successfully use any appropriate evidence in accordance with procedural legislation. For example, we won a case for a client where our evidence of the amount of material damage caused by the disclosure of confidential information consisted of conclusions from corresponding expert opinions or letters from counterparties explaining why they did not conclude contracts with the client and what amount these contracts could have been in the event of the offender's disclosure of confidential information. Such amounts were successfully recovered from the perpetrator on behalf of our clients.
Another important aspect that is necessary to recover damages from the responsible party, whether in the form of compensation or a penalty (in case the type of liability is determined as a fixed penalty in the contract), is the evidentiary basis of the guilt of that specific person. In this case, we also use any legally permissible types of evidence to help our clients. These can include correspondence, witness testimony, or video surveillance footage.
In one case from our practice, we successfully proved the guilt of an individual based on a handwriting analysis of a letter in which confidential information was revealed. The witness confirmed that they received the letter from the guilty party. As a result, a hefty penalty was collected from the responsible party as stipulated in the contract.
In addition, the creation of internal HR documentation, such as orders for each code transferred to you, indicating that this code is confidential information, is also an important aspect of successfully recovering monetary damages from responsible parties, especially in the IT industry.
According to legal practice, if you publish any type of software containing confidential information to the public and you haven't created a company policy stating that such information is confidential, the court will reject your claim to treat such information as confidential and recover the monetary amount specified in the contract from the perpetrator.
Our company offers a comprehensive consultation service and assistance in developing a package of documents for starting and developing an IT business in Ukraine.
We also provide assistance in protecting your interests, including cases of confidentiality breaches within your enterprise.