NDA and Trade Secret: How to Properly Protect Confidential Information in Business

A Non-Disclosure Agreement (commonly referred to as an NDA) protects confidential information exchanged between contracting parties during negotiations, cooperation, or an employment relationship.

A trade secret consists of information that is not generally known or easily accessible, has commercial value precisely because it is secret, and whose lawful holder has taken reasonable measures to preserve its secrecy.

The role of an NDA is to clearly determine which information is considered confidential, who may use it, for what purposes, how it must be safeguarded, and what consequences arise in the event of misuse or disclosure. Therefore, an NDA does not itself make information a trade secret; rather, it provides a legal framework for protecting the secret within a specific business relationship and facilitates proof of breach and liability before a court.

What Is an NDA (Non-Disclosure Agreement)?

An NDA (Non-Disclosure Agreement) is a contract by which two or more parties undertake not to disclose confidential information obtained during negotiations, business cooperation, a project, or an employment relationship.

An NDA exists independently of any future principal agreement, which may or may not ultimately be concluded. It is typically executed as a preliminary step before negotiations begin, although it may also be concluded as a separate agreement during ongoing cooperation.

Practice shows that it is safest to execute an NDA before any exchange of information begins, as there is always a risk that key data may already have been disclosed if the agreement is signed later.

The Difference Between an NDA and a Trade Secret

These two concepts are related, but they are not the same.

A trade secret is the content — a set of information that has economic value because it is not publicly known, and which its holder wishes to protect. An NDA is the legal instrument through which that protection is implemented.

Without clearly defining what constitutes a trade secret, an NDA cannot provide effective protection. If the holder of the information does not know what qualifies as its trade secret, the NDA will be vague and filled with indeterminate provisions that have little practical value, for example:

• “everything stated at the meeting shall be considered a trade secret,” or

• “the receiving party is obliged to keep the trade secret forever,” and similar formulations.

What Qualifies as a Trade Secret and Confidential Information

A trade secret may be any information that:

1. Is not publicly known,

2. Has commercial value, and

3. Whose disclosure could cause damage to the holder of the information.

In practice, this may include:

• Technical solutions and source code

• Client and supplier databases

• Strategies, budgets, campaign plans

• Algorithms and know-how

• Financial reports prior to publication

• Business-related employee data

• Recipes and formulas

• Pricing models or negotiation strategies

It is important to emphasize that information which is already public or generally known cannot become a trade secret merely because it is labeled as such in a contract.

Who Needs an NDA?

An NDA is not reserved only for large companies. On the contrary, small businesses and startups often rely precisely on innovation, ideas, and strategies that are not yet publicly available.

In practice, NDAs are used in:

• Negotiations between companies

• Startup projects and investments

• IT development and software solutions

• Marketing agencies and creative concepts

• Consulting and legal services

• Employment or engagement of collaborators

• Exchange of business ideas between individuals

They are increasingly concluded between:

• Employer and employee

• Client and freelancer

• Company and external consultant

Although a confidentiality obligation is often included in an employment contract, a separate NDA usually provides stronger preventive and evidentiary value.

How to Properly Define Confidential Information in an NDA

The most common mistake in practice is copying a generic NDA template from the internet.

This does not necessarily mean the template is incorrect. However, considering the wide range of information that may qualify as a trade secret and the various ways in which it may be disclosed and cause damage, the likelihood that a generic template will adequately cover your specific circumstances is minimal.

If a dispute arises, the court will not assume what the holder considered confidential — it will examine only what was precisely defined in the contract as a trade secret and the measures prescribed for its protection.

Therefore, an NDA should contain:

1. A precise description of confidential information

2. The manner in which information is delivered

3. Identification of persons who may access the information

4. The permitted purpose of use

Duration of Confidentiality Obligations

The duration must be reasonable, connected to the nature of the information, and practically enforceable.

Formulations such as “forever” or “for life” may be legally void if not justified. For certain information, a long duration may be appropriate (e.g., a formula that remains unchanged for decades), while for other information confidentiality may lose relevance once it becomes public or obsolete.

How to Handle Confidential Information

Protection of trade secrets begins with an NDA, but it does not end there.

If a company:

• Has no access control over documents

• Sends confidential files without protection

• Allows unrestricted copying of databases

• Lacks internal procedures

then even the best-drafted NDA will not protect the holder of the information.

In the event of a dispute, courts examine the actual handling of information, not merely the wording of the contract.

Legal Protection in Case of NDA Breach

If confidential information is disclosed, the injured party may seek:

1. Compensation for material damage (reduction of assets or lost profit),

2. Protection against unfair competition (especially if the secret is used to gain market advantage).

Contractual Penalty – The Most Effective Protection Mechanism

Proving actual damage is often complex, time-consuming, and costly. Therefore, a properly drafted agreement should include a contractual penalty — a predetermined amount payable in the event of breach.

The advantages of a contractual penalty are:

1. There is no need to prove the amount of damage,

2. It is sufficient to prove the breach of obligation.

However, the penalty must be reasonable. Excessively high amounts may either discourage signing the NDA or be challenged before a court.

International NDA – Jurisdiction and Governing Law

If one of the parties is foreign, the contract should define:

• Competent court or arbitration,

• Governing law,

• Language of the agreement.

Without these provisions, disputes may become significantly more complicated and expensive.

Who Must Sign the NDA?

The agreement must be signed by a person authorized to represent the company according to the Serbian Business Registers Agency (APR) or a person holding a valid power of attorney from the legal representative. The signature of a department director or manager alone is not sufficient unless properly authorized.

Frequently Asked Questions About NDAs and Trade Secrets

Is an NDA mandatory by law?
No. The law does not prescribe mandatory execution of an NDA. Its purpose is to protect the interests of the contracting parties.

Does a confidentiality clause in an employment contract replace an agreement?
A confidentiality clause in an employment contract, as well as a properly defined trade secret provision in a Rulebook on Work, may provide protection. However, a separate NDA usually regulates obligations and sanctions more precisely.

Can everything learned during business discussions or work qualify as a trade secret?
No. The information must have commercial value and must not be publicly available.

How long does the confidentiality obligation last?
The obligation lasts as long as agreed, but the duration must be reasonable and justified.

Can damages be claimed for disclosure of a trade secret without a contractual penalty?
Yes, but you will need to prove actual damage, which is typically more complex in practice.

Is an agreement necessary for short negotiations?
If sensitive information is exchanged — yes, even if cooperation is never ultimately concluded.

Conclusion

For some time now, the greatest value of companies has not been in their equipment, but in the information they possess. However, information is protected only if it is clearly defined and handled responsibly.

A well-drafted NDA is not a mere formality or just another document. It is part of a broader strategy for protecting trade secrets, reputation, and a company’s market position. Therefore, it is essential that it be tailored to the specific business relationship and the particular information being protected, which in practice implies professional legal drafting or review prior to signing.

Law Firm Petrović Mojsić & Partners