Current Developments

Labeling obligations in non-disclosure agreements cause more harm than good

2018/03/08, Marc_Rene_Spitz

Lately legal departments all around the world, especially from companies listed on a stock exchange, have been implementing a formal requirement in non-disclosure agreements that requires the disclosing party to mark or label their respective confidential information as such.
Methodically this is achieved in a two-step-process. The first step is to define confidential information generally. The second step is to add an additional requirement to mark/label the passed on confidential information. Only if both steps are taken, the information is confidential and thus protected. Often a wording like the following example can be found:
"Confidential Information" shall mean any information (…) and which is marked "Confidential" or similarly marked by the disclosing Party or which is - when disclosed orally or visually - identified as such prior to disclosure and summarized in writing by the disclosing Party and said summary is given to the receiving Party marked "Confidential" or similarly labelled within thirty (30) days after such disclosure,
The „and“ in the above example has the effect that there is no protection for the corresponding information without the respective marking/labeling, consequently the whole purpose of the agreement
It’s obviously the intention of the user to achieve first and foremost legal certainty. Because marked documents are easy to archive and track. If there is ever a dispute, evidence is easily accessible. Legal risk can be determined more quickly and with a higher probability.
It is nonetheless immensely underestimated that such a labeling/marking obligation does not work in day-to-day operations. The people actually involved in a project usually lack legal expertise. It can never be completely assumed that the people involved (a) even know about the labeling/marking obligations, (b) remember the labeling/marking obligations (esp. in an oral exchange which calls for a written summary) or (c) or are unaware that the information disclosed is confidential to begin with. These factors represent a factual risk.
Our clients have already profited from our determination to remove labeling/marking obligations without replacement. It is our hope that this “trend” to labeling/marking obligations in non-disclosure agreements will fade away (or even completely disappears), since these cause more harm than benefit.