Confidentiality Clause vs NDA: Protecting Business Secrets

A confidentiality clause and a non-disclosure agreement (NDA) do the same job: they oblige the recipient of your information to keep it secret and use it only for an agreed purpose. The difference is where they sit. A confidentiality clause is part of a wider contract (services, employment, supply, joint venture); an NDA is a standalone contract, usually signed before discussions or due diligence begin. Either way, it is also one of the “reasonable steps” that trade-secret law expects you to take.

What is the difference between a confidentiality clause and an NDA?

The terms are largely interchangeable; what differs is the context and timing.

	Confidentiality clause	NDA / confidentiality agreement
Where it sits	A section of a services, supply, employment or partnership contract	A separate, standalone contract
When it is signed	With the main deal	Usually before talks, a pitch or due diligence
Direction	Often mutual, following the main deal	One-way (only one side discloses) or mutual
Duration	Usually tied to the contract, with a survival period	Its own term, often with a separate period for trade secrets
What to check	That it survives termination of the main contract	That it covers everything disclosed in talks, including orally

What counts as a trade secret?

Information is protected as a trade secret only if it meets three conditions, which appear almost word for word in international and national law:

It is secret: not generally known among, or readily accessible to, people who normally deal with that kind of information.
It has commercial value because it is secret.
Reasonable steps have been taken to keep it secret.

These are the conditions in Article 39 of the WTO TRIPS Agreement, in Taiwan’s Trade Secrets Act, Art. 2 and in the UK’s Trade Secrets (Enforcement, etc.) Regulations 2018, reg. 2. WIPO lists “the use of confidentiality agreements for business partners and employees” among those reasonable steps, and notes that trade secrets can cover both technical information (processes, designs, source code) and commercial information (supplier and client lists, distribution methods) (WIPO).

Two limits matter. A trade-secret owner cannot stop others who develop the same information independently or by reverse engineering (WIPO). And information you share without any confidentiality obligation may lose its protection, because you did not take reasonable steps.

How should the contract define confidential information?

Define it broadly enough to cover what you will actually share, and list clear exclusions so the definition is enforceable.

Include: technical information (code, designs, formulas, processes), business information (pricing, customer and supplier lists, plans, financial data), information belonging to third parties that you pass on, and information disclosed orally or by inspection, not only documents marked “confidential”. If you require marking, say how oral disclosures are confirmed.

Exclude (standard exclusions): information that is or becomes public without the recipient’s fault, that the recipient already had without restriction, that it develops independently, or that it receives lawfully from a third party without restriction.

What must the receiving party do, and not do?

Spell out these obligations:

Non-disclosure: no disclosure to anyone not authorised by the agreement.
Purpose limitation: use only for the stated purpose (for example, evaluating a transaction or performing the services).
Standard of care: at least reasonable care, or the care it uses for its own information of similar importance, whichever is higher.
Need-to-know access: only employees, advisers and affiliates who need it for the purpose and who are bound by equivalent obligations; the recipient remains responsible for them.
Compelled disclosure: if a court or authority requires disclosure, notice to the discloser where lawful, and disclosure limited to what is required.
Return or destruction: on request or at the end, with written confirmation, and any archival copy for legal or regulatory reasons kept confidential.

How long does an NDA last?

An NDA lasts as long as its terms say. Typical structures are a fixed period from disclosure or from the end of the relationship for ordinary confidential information, and an obligation that continues for as long as information remains a trade secret. That second option tracks the law: trade-secret protection depends on the information continuing to meet the definition above, so it has no fixed expiry, but ends once the information becomes public.

Whatever period you choose, add a survival clause so the obligations continue after the main contract ends.

Even without a signed NDA, some protection may exist during negotiations. Under the UNIDROIT Principles, where information is given as confidential in the course of negotiations, the other party must not disclose it or use it improperly, whether or not a contract is concluded (Art. 2.1.16). This applies only where those Principles govern; do not rely on it instead of an NDA.

What happens if confidential information is leaked or misused?

You can claim under the contract (damages, and any indemnity or agreed sum it provides) and under trade-secret law where the information qualifies. Taiwan’s Trade Secrets Act is an example of what the statute adds:

Remedy under Taiwan’s Trade Secrets Act	Article
Order to remove an ongoing misappropriation, or to prevent a likely one, and to destroy infringing products	Art. 11
Damages for intentional or negligent misappropriation; claim lapses 2 years after the owner knows of the act and the person liable, or 10 years after the act	Art. 12
Choice of damages measure (loss suffered or the infringer’s profits); up to three times proven damages for intentional misappropriation	Art. 13
Criminal penalty for misappropriation for illicit gain or to cause loss: up to 5 years’ imprisonment and a fine of NT$1 million to NT$10 million	Art. 13-1

“Breach of an obligation to maintain secrecy” is itself listed as an improper means of acquiring a trade secret (Art. 10), which is one reason a written confidentiality obligation matters. Remedies, time limits and penalties differ in other countries; check the law where the recipient is and where the contract’s disputes will be heard.

An indemnity can add contractual cover for losses caused by a leak; see indemnification clauses.

What practical steps support the contract?

The contract works better, and the “reasonable steps” condition is easier to show, if you also:

mark confidential documents and files, and keep a record of what was disclosed to whom;
share only what the purpose needs, in stages for sensitive material;
restrict access internally and use access-controlled data rooms;
remind departing employees and contractors of continuing obligations.

Frequently asked questions

Is a mutual NDA better than a one-way NDA?

Use a mutual NDA when both sides will share sensitive information; use a one-way NDA when only you will. A mutual form signed where only one side discloses can be accepted, but check that its exclusions and remedies still suit you.

Can an NDA stop an employee from working for a competitor?

Not by itself. An NDA restricts use and disclosure of information; stopping someone from competing needs a separate non-compete clause (WIPO lists it as a separate measure), and whether one is enforceable depends on the governing law, especially for employees.

What should I check in an NDA before signing?

The definition and exclusions, the purpose, the duration and survival, who may receive the information, return or destruction, and the governing law and forum. Our guide on what to look for when reviewing a contract covers the wider checklist.