During the negotiation, signing, performance, and even after the termination and cancellation of contracts, confidential information plays an important role in protecting the rights and binding obligations to the parties to the contracts. In this article, TNTP will share with you the confidential information and its importance.
1. Definition of confidential information and the legal grounds
- Confidential information is specified in some of the following legal documents:
Civil Code No. 91/2015/QH13;
Labor Code No. 45/2019/QH14;
Law Comercial No.36/2005/QH11;
Law on Intellectual Property No. 50/2005/QH11 (amended to some articles by with Laws No. 36/2009/QH12, No. 42/2019/QH14);
Competition Law No. 23/2018/QH14.
- Confidential information is understood as when a party receives any secret information from the other party during the process of entering into the contract, this party must protect that information and documents.
- Forms of expression: Confidential information can be expressed in the form of a contract clause (confidentiality clause) or a non-disclosure agreement.
2. What information is generally considered confidential information?
The information that needs to be kept confidential usually includes:
- Trade secrets, technical and scientific decisions: product formula, the technical structure of the product, design,…
- Commercial information: customer list, distributor system, business plan, advertising strategy,…
- Financial information: price structure, capital, the value of enterprise assets,…
- Details about customers, suppliers, and information relating to the managers, directors, or employees of the information provider,…
- Other information that enterprises suppose needs to be kept confidential.
Confidential information can be in the form of text, speech, electronic data, and other forms.
3. Role of confidentiality clause or a non-disclosure agreement
- As mentioned above, we can see that the information that needs to be kept confidential is all important information or especially important. There is information that directly affects the existence and development of the business or affects the provision of products of the enterprises,… Therefore, the obligation of protecting confidential information is extremely necessary, even if this obligation is applied right from the pre-contractual stage, during the performance of the contract, and after terminating the contractual relationship.
- When drafting a confidentiality clause or a non-disclosure agreement, the information provider usually specifies the information that is considered to be confidential, as well as the obligation to fine or damage arising from the breaching party. This is considered a legal barrier that contributes to the maximum prevention of acts of disclosing confidential information by the party receiving the information.
4. Validity of confidentiality clause or a non-disclosure agreement when the contract is terminated, canceled, invalid
- Confidentiality clauses are usually agreed upon by the parties and undertake to remain in effect even if the contract is terminated or canceled. However, the Civil Code only recognizes the maintenance of validity for some terms including agreements on fines, damages, and settlement of disputes (Article 427 of the Civil Code). Commercial Law only recognizes the maintenance of validity for rights and obligations on settlement of disputes in case of cancellation of the contract.
- In case the contract is invalid, the confidentiality clause is not guaranteed in effect. Currently, the law only recognizes the arbitration agreement is independent. It means when the contract is invalid, the clause on the arbitration agreement remains valid (except the arbitration agreement itself is declared invalid by the court). Therefore, if the whole contract is declared invalid, all of the agreements (including the confidentiality clause) in the contract are also declared invalid except for the arbitration agreement clause. This results in the absence of any rights and obligations arising from the contract, but only rights and obligations arising from compensation for damages. In other words, the parties have no obligation to keep confidential information arising from the contract.
- To limit the aforementioned risks, the contracting Parties may enter into a separate agreement on confidential information. This option will reduce the risk to the information party provides when a dispute occurs. This agreement can be signed before, with, or after signing the contract. In some cases, it is extremely important to sign an information security agreement during the negotiation stage (pre-contract).
Above are some views on confidential information agreement, you can refer to apply when drafting a confidential information agreement.
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