Non-Disclosure Agreements (NDAs) in Business Relations: Legal Function, Breach, and Remedies

This article examines non-disclosure agreements, commonly known as NDAs, within the context of business relations. These contractual instruments are widely used in preliminary negotiations, commercial partnerships, mergers and acquisitions (M&A), and in relationships with employees and service providers. The study addresses the legal nature of NDAs, the limits of confidentiality clauses, cases of breach, and the legal mechanisms available for compensation arising from the improper disclosure of strategic information. Recent case law is analyzed to illustrate the practical application of business confidentiality protection.

In today’s corporate environment, information has become one of the most valuable assets. Business plans, strategic data, product formulas, client lists, pricing models, and proprietary technology represent significant competitive advantages, making their protection essential for business continuity and success.

Accordingly, NDAs have become increasingly common tools to formalize confidentiality obligations and regulate the legal consequences of any improper disclosure.

This article explores the legal foundations of NDAs, their applicability in business relationships, and the legal remedies available to parties harmed by a breach of confidentiality.

2. Legal Nature and Basis of the NDA

A non-disclosure agreement is an atypical contract, but it is fully valid under the principle of freedom of contract (Articles 421 and 421-A of the Brazilian Civil Code). It may be entered into independently or as an ancillary clause within a principal contract (e.g., service provision, M&A, partnerships, supply, consultancy, etc.).

The confidentiality clause imposes an obligation not to disclose, transfer, or use any sensitive information obtained during the business relationship for one’s own benefit or that of third parties.

The confidentiality duty is reinforced by general principles such as:

·         Objective good faith (Art. 422 of the Civil Code);

·         Duty of loyalty in contractual relations;

·         Prohibition of unjust enrichment and unfair competition.

Additionally, NDAs may intersect with intellectual property law, competition law, and data protection regulations (e.g., Brazil’s LGPD, Law No. 9.279/96).

3. Practical Applications of NDAs in Business Law

NDAs are widely used in the following contexts:

·         Preliminary negotiations and due diligence processes (e.g., partnerships, mergers, acquisitions);

·         Contracts involving specialized services;

·         Joint development projects involving technology or innovation;

·         Relationships with employees or outsourced professionals;

·         Startups, incubators, and investor pitches.

In such scenarios, the NDA seeks to preserve informational advantage and prevent the misuse of strategic data, know-how, or intellectual property.

4. Recommended Clauses in NDAs

An effective NDA should contain clauses that:

·         Clearly define what constitutes “confidential information”;

·         Establish the duration of the confidentiality obligation (including post-contractual periods);

·         Specify exceptions (e.g., legal disclosure obligations, public information);

·         Provide sanctions for breach, such as liquidated damages, compensation for material and moral damages, and lost profits;

·         Determine the competent jurisdiction or include an arbitration clause for dispute resolution;

·         In some cases, provide for a complementary non-compete clause.

5. Breach of Confidentiality: Civil Liability and Evidence

A breach of contractual confidentiality may give rise to:

·         Contractual civil liability, based on Articles 389, 395, and 402 of the Civil Code;

·         Damages, including actual losses (e.g., damage control costs, lost contracts) and loss of profits;

·         In serious cases, injunctive relief or emergency measures to cease disclosure or prevent competitors from using the information.

Evidence of a breach may include:

·         Electronic communications;

·         Public disclosure of protected material;

·         Witness testimony from employees or third parties;

·         Market changes indicating misuse of the confidential information.

6. Case Law on NDAs and Liability for Breach

“Unauthorized disclosure of strategic information obtained during due diligence constitutes a contractual breach and gives rise to compensation, even in the absence of a final agreement.”(TJSP, Civil Appeal 1003781-26.2021.8.26.0100, judgment on 05/15/2023)

“Confidentiality, even in the absence of a penalty clause, triggers civil liability when violated, due to the breach of good faith and contractual loyalty.” (STJ, REsp 1.639.672/SP, Justice Marco Aurélio Bellizze, judgment on 12/10/2021)

“The improper use of trade secrets, even if obtained without fraud, gives rise to damages under Article 195, XI of Law No. 9.279/96.” (TRF3, Civil Appeal 5006542-87.2020.4.03.6100, judgment on 02/03/2022)

7. Final Considerations

Non-disclosure agreements are essential legal tools for protecting strategic information in the business sphere. Although atypical contracts, NDAs are supported by the principles of private autonomy and civil liability law.

Their effectiveness, however, depends on clear, precise, and proportionate drafting, as well as preventive strategies involving compliance and information security.

The proactive role of corporate counsel in drafting customized and legally sound NDAs is vital to preserving intangible assets and avoiding complex litigation in an increasingly data-driven and competitive market.