United Arab Emirates: Non-Disclosure Contracts And Non-Compete Agreements

Last Updated: 16 October 2019
Article by STA Law Firm
Most Read Contributor in United Arab Emirates, October 2019

Non-Disclosure Agreements for the Protection of Business

To maintain a competitive advantage in the market, businesses ought to keep innovating, working on new projects, products, and services to best curb the pressure against their competition. This is applicable in a plethora of areas of business, from technology to finance. A non-disclosure agreement (NDA) is a legal document that serves to keep a lid on this aforementioned sensitive information. Within a larger legal document or contract, they made be referred to as confidentiality clauses, confidentiality statements, or confidentiality agreements (CA). Legally speaking, it is a legal contract amongst at least two contracting parties that seeks to detail the confidential knowledge and/or information that the parties wish to share only between themselves, and restrict from any access by any third-party/parties. In most commercial applications, this "information" is usually referred to as intellectual property, whereas the term may refer to other sensitive information in the cases of bank-client confidentiality, attorney-client privilege, priest-penitent privilege, and doctor-patient confidentiality. However, it is important to note that in all of the prior examples excluding commercial applications, the guarantee of non-disclosure is usually not embodied in the form of a written agreement between the parties.

This article will seek the analyze the commercial application of NDAs only, looking at how they may be used for protection of businesses against, and address concerns such as, but not limited to, trade secrets, data-privacy, branding, consumer protection, copyrights, confidentiality, and patents, on ends of both the employer and employee.

An NDA, ideally, should serve three important functions:

  • Protecting the vital information: The party/parties that sign an NDA consolidates a legal promise to not divulge any information that is defined as "confidential" under the agreement to unauthorized parties. Any breach of this agreement may be prosecuted as a breach of contract.
  • Assisting inventors to keep their patent rights: A well-drafted NDA should serve the best interests of innovators of new products and intellectual property, especially if the intellectual property is disclosed publicly.
  • Distinguishing clearly between confidential and non-confidential information: A good NDA should clearly state in black and white, so that parties cannot claim ignorance, or the absence of knowledge, in the case of any divulsion of confidential information.

Also, an NDA must clearly incorporate the following elements within its documentation:

  • The parties that can access the information: In a non-disclosure agreement, all the contracting parties and their identities must be clearly outlined. Information sharing should take place on a need to know basis, and any individual that wishes to gain access to the confidential information should become a party to the NDA.
  • The length and duration of the NDA must be defined: NDAs may last for a definite period of time, or in the cases of information such as personal details, the NDA may be valid indefinitely.
  • The purpose of the NDA must be clearly stated: This is the most important aspect of NDA formation. The NDA must clearly answer questions such as "what" and "why" pertaining to the confidential information and the purpose for its confidentiality. This is of paramount importance, as parties would not be willing to sign an agreement that may hinder the business.

NDAs and Protection of Trade Secrets

Mostly, NDAs are of two types: mutual and non-mutual. A non-mutual agreement, or a one-sided agreement, is usually employed when only one party/side would be sharing confidential information with their counterpart, thus only requiring one signee to the agreement. Whereas, mutual agreements entail scenarios wherein two or more parties share confidential information of their own amongst themselves.

A recent trend in the United States (US) case law, that has raised the possibility of including an expiry date in a non-mutual NDA, has greatly increased the risk of inadvertent loss of trade secret protection. The NDA would restrict the covenantor's (the party that agrees not to disclose any confidential information, for example, an employee in an employer-employee relationship) right to disclose or utilize any information defined as "confidential" by the covenantee (the party to whom the promise was made). Such "confidential information" may include trade secrets in a commercial environment. A "trade secret" may be simply defined as any confidential information that is of exceptional value to a business operation, and is usually subject to great efforts by members of the business to protect its secrecy.

However, a "restraint of trade" may occur in the operation of some NDAs. A "restraint of trade", simply put, occurs if and when the covenantor's ability to carry out trade with third parties to the NDA is restricted. The existence of expiry date in an NDA would constitute to a restraint of trade, and lead to the creation of a scenario where a business owner may be unable to carry out any business operation, as it may risk the divulsion of some trade secrets. In such cases, the NDA may be deemed void. The use of expiry dates in NDAs may be able to limit the scope of the trade restraint in some cases. There have been many cases which have analyzed the question of enforceability of NDAs with regards to restraint of trade clauses present in them. Thus far, United States (US) case law is the most comprehensive on this subject.

Under the Uniform Trades Act (UTSA) 1985, the Uniform Law Commission (ULC) of the United States of America (USA) defines trade secrets as the following:

"information, including a formula, pattern, compilation, program, device, method, technique or process that:

  1. derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use, and
  2. is the subject of efforts that are reasonable under the circumstances to maintain its secrecy"

This definition of trade secrets will serve useful in comprehending the case law that follows. These case laws have dealt with the issue of trade secrets being disclosed under NDAs upon expiration after a specific time period, and the consequences of expiration of the obligation by the covenantee to protect the trade secret(s) after a certain time period.

In DB Riley, Inc. v. AB Engineering Corp., at the US District Court for the District of Massachusetts, (case ref. no. 977 F. Supp. 84 (D. Mass. 1997)), decided on 18th September 1997, the matter pertained to the plaintiff's claim that the defendant had unfairly acquired the plaintiff's trade secret information, and in spite of contractual agreements that disallowed disclosure by any means, that had existed between them prior to the suit, the defendant utilized the trade secrets to gain a "competitive advantage". Despite this finding, the court ruled in favour of the defendant, stating that it was the plaintiff's fault for not being able to take reasonable measures to preserve confidentiality. Also, as the plaintiff's confidentiality agreement was only valid over a limited period of time (in this case, for a period of 10 years only), the plaintiff could not claim "eternal vigilance" over the business's trade secrets. Thus, the court did not award any preliminary injunction to the plaintiff over the lack of merit in his claim, owing to the expiration clause in the confidentiality agreement. This case clearly outlines how definite (by time) NDAs can affect business practices, and highlights the importance of businesses exercising their power to contract eternal/indefinite agreements.

A similar case, Silicon Image, Inc. v. Analogix Semiconductor, Inc., (case ref. no. 642 F. Supp. 2d 957(2008)) which was decided at the US District Court for the Northern District of California on 21st November 2008, pertained to a plaintiff's claim that the defendant had wrongfully misappropriated the plaintiff's trade secrets, and thus the plaintiff had sought to stop the defendant from selling copies of its work.

Analogous to the prior case law referred, the court here also ruled that the information in question would only be qualified as a trade secret had the plaintiff taken reasonable steps to ensure its confidentiality, which, the court said, need not have included unduly expensive measures, but simple measures, such as, but not limited to, advising employees on the materiality of the trade secret, and limiting access to the same by the employment of a "need-to-know" basis. Since the duration of the agreement was only for 2 years, the defendant was free to implement the aforementioned practices upon expiration of that time period. Thus, the court ruled that the plaintiff did not possess a high probability of success of its misappropriation claim.

In both cases, the terms of confidentiality, which were time-limited, resulted in a loss of trade secret protection. Whilst the appropriate solution in such cases could be to implement perpetual terms of confidentiality, such agreements are deemed to be "unreasonable restraints on trade" in many US states and other jurisdictions across the globe, as it does not guarantee any concrete protection of the confidential information over such large periods of time. This dilemma exists to a great degree in other jurisdictions as well.

Given the precedent that has been set by the aforementioned examples in case law, the way forward for businesses is to establish clear lines that distinguish between "regular" confidential information, and trade secrets specifically, in NDAs. The current implementation of a single system to broadly classify all information as confidential may deem beneficial, but its applicability would be expanded if businesses choose to include a separate section which exclusively carves out "trade secrets" from the rest of the information. Use of language along the lines of "whether or not a trade secret" would complement the definition of "confidential information" in confidentiality contracts.

Another practice that businesses may employ would be setting distinct time durations for both confidential information and trade secrets respectively. This may allow for indefinite protection of trade secrets whilst ensuring definite protection for all other confidential information, allowing businesses to remain in compliance of confidentiality laws whilst simultaneously not rendering the NDAs to be void by placing "unreasonable restraints on trade".

Apart from the time and duration of the agreement, there are a few additional provisions that should be included in NDAs to help businesses better protect themselves. Some of them include the following:

  • Injunction: Business owners ought to ensure that NDAs include a clause that grants them the right to injunctive relief to seek legal aid against the covenantees in the event of a breach of the agreement.
  • No rights in the receiving party: It may prove useful for business owners to include a clause that does not grant the receiving party (in most commercial applications, the employee), the right to enter into any further agreements or deals, just merely on the fact that they have signed an agreement to preserve confidentiality of some information.
  • Employee Solicitation: In the event that the party receiving the confidential agreement may have access to the business owner's employees, it would better serve the business owner's interests to include a clause in the NDA that restricts that party from soliciting, hiring, or engaging in business-related communication with the business owner's employees for the duration of confidentiality agreement. In some cases, the business owner may only desire that this clause apply to his/her employees that have come into contact, or are cognizant of, special confidential information, or trade secrets.
  • The jurisdiction in the event of a dispute: In most cases, where the business owner is the disclosing party, it would best serve the business owner that he/she detail exactly which jurisdiction a dispute would be resolved in (in the agreement), in the event of a breach or dispute. Furthermore, this would alleviate any logistical hindrances for dispute resolution.

Protection of Employees under NDAs

In many scenarios, NDAs may be used unjustly and unethically to silence employees that may suffer the harassment of various forms from their employers.

A recent, high profile case that highlights this issue, is the case of ABC v Telegraph Media Group Ltd [2018] EWCA Civ 2329, decided on the 23rd of October 2018 by the Civil Division at the Court of Appeal in England & Wales (CoA). This was an appeal case that was filed by a business executive (who was later identified to be Sir Philip Green, a billionaire businessman who is the chairman of the Arcadia Group, an apparel retail company), against the decision of the High Court of England & Wales (HC), which had refused to grant an interim injunction which restrained the respondent (in this case, the daily newspaper The Telegraph) from publishing information that was previously disclosed by an alleged breach of confidence.

The breach of confidence was alleged to have happened when 5 employees of the business executive, had accused the business executive of sexually harassing them. It is also important to note that these complainants had been signatories to NDAs, which entailed their harassment complaints, and had received substantial payments from the company prior to anything going on the public record. The High Court judge rejected the business executive's application for an injunction of this information, ruling that the confidentiality of the information was outweighed by public interest in the newspaper.

Upon appeal at the CoA, the appeal was granted by the judge, citing that the publishing of confidential information by The Telegraph was indeed a breach of confidence and that the respondent was obviously aware of this. Whilst the CoA did appreciate the gravity of the matter of misconduct in the workplace and its interest in public debate, he said that ruling otherwise would undermine the importance of NDAs, which had a legitimate role in the settlement of this dispute. Moreover, there was no evidence that the NDAs were not signed consensually by five employees, or by the means of any threats or unreasonable force, and that prior to signing the NDAs, the employees were free to go public with their allegations.

Conclusion

In conclusion, such cases blur the lines between ethical behaviour and implementing the law correctly. An employer's best interest should always align with those of his/her employees. However, the use of NDAs to exploit employees and silence them turns the moral compass against NDAs, turning them sources of legal protection to sources of institutionalized harassment. The use in NDAs in the correct context, both economically and morally, would serve as the ideal use of this legal tool.

Parties may also consider signing a non-disclosure and non-compete agreement. Like non-dislcosure agreements, non-compete contracts are also regarded as restrictive covenant that limits a person's ability to compete against the other party. In other words, non-compete clause prevents a company, individual, or an employee from dislosing material information to competitors (or; undertake competing business (whether directly or indirectly) or conducting business with the comeptitors. Just like non-disclosure agreements aim at preventing financial damage to disclosing party, non-compete agreements are drafted to prevent the recipient party from establishing their own business which will compete with the business of disclosing party. To learn more about non-compete agreements under UAE Labout Law, please click here.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions