Non-Disclosure Agreements: Are They Truly Enforceable in Offshore Contracts?

A business may suffer from irrevocable damage and lose out to its competitors if its proprietary information is leaked. Confidential, commercially-valuable information and trade secrets must be secured and protected through a contractual agreement between the outsourcer and the service provider. NDAs are binding legal contracts that constantly remind both parties to keep sensitive information confidential. However, can contractual agreements with an offshore service provider be enforced? Sometimes NDAs can become extremely limited in providing protection for a customer. In some outsourcing countries, it is possible to enforce NDAs because their courts have become proactive in protecting the interests of customers who own proprietary information.

However, some clauses that are common in US law might not be enforceable in every country that is an outsourcing hub. Some of the concerns regarding the enforcement of NDAs include:

  • Various statutes nullify the protection given under NDA, thus it might not be able to prevent disclosure of information if an independent party requests release of the same.
  • Many offshore companies merely take the NDA as a document to maintain secrecy of information about product formula and design. They believe that it does not protect the disclosed information from being exploited by another contractor in his personal interest. The owner of the original product design or formula finds it difficult to sue the violators.
  • Some contracting companies fail to specify the agreement duration, which makes their NDAs potentially vulnerable to breach long after the completion of the contract. Thus, third-party companies can wrongly assume the completion of the project as the end of the NDA.
  • The legal mechanism for enforcement of different types of IP rights varies from one country to another and may also vary within a country.

It is necessary that a realistic assessment of the challenges of enforcing IP rights is done before a customer enters into an outsourcing relationship. It is difficult for the customer to decide on the recourse to be taken when their IP is commercially exploited by a third party. Thus it is necessary that a customer must demand "unambiguous provisions" in the operative contract so that the service provider is bound to maintain trade secrets and the customer's confidential information in strict confidence even after termination of the contract. In such cases, breach of confidentiality should amount to termination of the contract and result in uncapped financial consequences to the service provider.

Seeking to enforce a foreign judgment against an offshore company or service provider is an arduous, time-consuming, unpredictable, and expensive task, depending primarily on the laws of the land. Nevertheless, an NDA is important before the customer shares confidential information about their business with a contractor or service provider, to ensure that it thoroughly protects their ideas or information from unintended uses.

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