What comes after completing the NDA exam

Secure contract negotiations with the Letter of Intent and the NDA

Many entrepreneurs know the situation: You are negotiating a cooperation with a company that suits yours very well with its offer fit your own business would or its special know-how could improve its own products. Or the search for investors was successful and should now be contractually brought to "dry rags".

Instruments for confidentiality and intent

At a certain point in the negotiations, sometimes even at the beginning, however, the question arises as to how far you can can reveal your own ideas to negotiating partners and want and to what extent you can achieve a certain level of commitment even before concluding the intended contract. Two contractual possibilities that offer an answer to this are the so-called Confidentiality Agreement, also Non-Disclosure Agreement (NDA) called, and the so-called Letter of intent, which are also called Letter of Intent (LOI). The following article is intended to explain both instruments and provide information on how to use them sensibly.

NDA: To protect your own know-how

A Confidentiality Agreement serves, as its name already indicates, primarily for Protect sensitive informationthat have to be disclosed in the course of contract negotiations, because otherwise the negotiations cannot be continued sensibly due to the confidentiality. True, in particular Trade and business secrets Protected by law in Germany, however, the conclusion of a confidentiality agreement has proven to be a central instrument in practice Protection of your own know-how established.

Benefits beyond the law

Because a confidentiality agreement doesn't just send an important one psychological signal, but can also, depending on its design, collect information that is not subject to legal protection. In addition, a confidentiality agreement grants, especially in cross-border negotiations Security for both negotiating partners with regard to the confidentiality obligations to be observed.

Content of a confidentiality agreement

Confidentiality agreements are usually the beginning of specific contract negotiations. They typically contain:

  1. a Definition of the protected information as
  2. the corresponding Confidentiality Obligations and
  3. see in part too Contractual penalties in the event of a breach in front.

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LOI: Record the planned collaboration

The situation is somewhat different with the so-called declaration of intent (LOI). To a large extent it is not binding. Rather, the negotiating parties document their willingness to enter into a contract with each other after the successful conclusion of further negotiations. However, the contract negotiations can still fail; The declaration of intent does not grant any entitlement to the future conclusion of the envisaged contract. However, it creates trust and posed a certain amount psychological liability because the negotiating partners are the first to put various cornerstones of their planned cooperation on paper together.

When does a letter of intent make sense?

Naturally, it is usually only concluded when the discussion parties have reached a certain level in the negotiations, which they - legally non-binding - want to fixate. It thus forms the Basis for the binding contract to be concluded later. Such declarations of intent are therefore mainly used for lengthy negotiations and rather large-volume transactions, such as company acquisitions and investments, IT projects or larger real estate transactions.

Content of a letter of intent

Letters of intent contain:

  1. the Documentation of the negotiation status as
  2. detailed information the planned further procedure and the distribution of the costs incurred up to the conclusion of the targeted contract.

LOI: Exclusivity is binding

In addition, there are regular agreements on confidentiality, insofar as these are not the subject of a separate confidentiality agreement and for Exclusivity of negotiations, i.e. the ban on conducting negotiations with competitors in parallel for the duration of the contract negotiations. These last-mentioned regulations are typically binding, contrary to the actual concept of the declaration of intent.

Sensible application: confidentiality and liability in business relationships

As already indicated, the conclusion of a confidentiality agreement or a declaration of intent is only recommended in certain situations. A Confidentiality Agreement Then consideration should be given to whom sensitive information should be disclosed during the negotiations on a contract to be concluded at a later date. In such a case, it is advisable to conclude a confidentiality agreement before exchanging this information. In everyday business or when ordering standard products, this is usually not the case.

Letter of intent at a later date

A Letter of intent is an option, especially for lengthy contract negotiations, to get the Document the status quo of the negotiations and the negotiations one psychological liability to rent. It often also represents the transition of the negotiations to the next negotiation stage, as it is a - insofar binding - Agreement on exclusivity of negotiations between the negotiating partners.

Important: check contracts before reaching an agreement!

For both the conclusion of a confidentiality agreement and a declaration of intent, a precise formulation of the corresponding obligations or intentions care should be taken. Otherwise there is a risk that not all relevant information is protected by the confidentiality agreement or, conversely, that it is so narrow that it threatens to hinder the day-to-day business of one of the negotiating partners. In the case of a declaration of intent, the risk of inaccurate wording lies primarily in one unwanted binding effect individual regulations that a negotiating party could later use to their advantage.

Volker Herrmann, LL.M. is a lawyer in the Berlin office of the international law firm Squire Patton Boggs and advises Smartlaw on questions of contract drafting and conflict resolution. His clients include large, international companies, medium-sized companies and mainly Berlin startups.