Protection of Trade Secrets in Technology Transfer Contracts Negotiations Stage

By: Dr. Nida’ N. Goussous
Talal Abu Ghazaleh Legal


Transferring Technology, whether locally or internationally, incorporates the transfer of patented works on one hand and trade secrets on the other hand.

Industrial innovative ideas can be protected either as patented works, if eligible for this protection through obtaining a patent which grants its owner the exclusivity right over his patented invention for a certain period of time as provided under the relevant jurisdiction, accordingly the invention will be disclosed to the public or kept as a trade secret if the owner wishes to keep the technology as a secret by not disclosing the same to the public through obtaining a patent or if such idea is not eligible for patent protection, such as the know-how of industrial operations, by that the right of exclusivity is concluded from the duty of confidentiality.

Negotiations stage usually precedes the concluding of the technology transfer contract. During this stage, the transferor of technology will be obliged to disclose the trade secrets in relation to the technology, wholly or partially, to the recipient as trade secrets in this type of contracts are ranked as more important than patents. In light of that, it is crucial to raise the recipient’s awareness regarding the obligation of confidentiality of the secret information in order to maintain its secrecy in an attempt to maintain the business in the market, especially if the negotiations did not lead the parties to eventually sign the technology transfer contract.

Non-Disclosure Agreements (NDAs) are the legal instrument to provide legal organization for the negotiations stage to illustrate the mutual obligation of both parties, particularly the confidentiality obligation, rather than keeping such obligations to be governed by the general rules of law which will burden both parties to prove their obligations and rights. 

Developed countries are in most cases the transferor of technology in technology transfer contracts, while developing countries are the recipients thereto. This means that the former will be the disclosing party in such NDAs and will impose the obligations in relation to confidentiality on the later. The trend of developed countries in this context is to widen the scope of protection against developing countries in an aim to provide the widest scope of protection regarding confidentiality of the disclosed information, though this trend might restrict the recipient in the future and widen his liability.

Three points must be taken into account while drafting an NDA for the negotiations stage in a technology transfer contract to keep the balance between parties, as follows:

•The scope of confidentiality regarding the secret information:
The determination of the information -subject matter- of the confidentiality obligation is one of the most important issues in NDAs related to technology transfer contracts. Thereby, information received orally shall not be subject to confidentiality but only documented information in writing, since this will avoid both parties the dilemma of proving the information –subject of confidentiality. Also, the acceptable medium of receiving the confidential information must be also determined, such as email, facsimile or postage, etc. 

Additionally, it is essential to determine precisely the information excluded from the confidentiality obligation, i.e. if such information which is already in public domain without breach of the NDA by the recipient, was known to the receiving party at the time it is received, disclosed by the recipient upon the instructions of the disclosing party, ordered to be disclosed or otherwise handed over by any court of law, public body, administration or by the operation of law, or reversely engineered or independently acquired by the receiving party.

•The scope of confidentiality regarding the concerned people;
The transferor usually requests the recipient to have special NDAs with their personnel who will be in contact with the confidential information. However, it is recommended to determine by name the people who will be exposed to such confidential information in order to limit the circle of liability.

On the other hand, it is also recommended to determine the contact person(s) of the disclosing party in order to limit the scope of liability, whereby the responsible people regarding the confidential information will be known for both parties.

In certain cases, the transferor provides for the liability of the recipient against the actions for third parties whom are not parties in the NDA. In such cases, the recipient shall not accept such term in the NDA signed in the negotiations stage.

•The scope of confidentiality regarding the term of protection
The disclosing party in such NDAs usually provides that the obligation of confidentiality shall survive to an unlimited term. This obligation, although is considered to be acceptable in certain circumstances, should at the same time be limited to the narrowest bounds, for a simple reason that the subject of such NDAs is technology and related matters thereto which is in continuous development, thereby imposing an obligation of unlimited term of confidentiality might complicate this obligation and burden the recipient to prove that no breach of this obligation has occurred if a third party reached a similar technology after the date of the NDA by reverse engineering. 

Accordingly, it is recommended to determine a certain period of time for keeping the confidentiality of the secret information unless the respective information is qualified due to its importance to be highly protected to an unlimited period of time, though this term must be decided on a case-by-case basis.

Raising the legal awareness of developing countries regarding the drafting of technology transfer contracts is a crucial matter which must be sustained and updated in light of the current international trends in order to be able to reach a point where developing countries stand in an equal footing with developed countries or at least preserve their legal rights without compromising their rights due to lack of awareness and understanding of the legal terms and their legal repercussions.