As part of a proof of concept involving our client and an international supplier, we prepared a full set of legal documents, including a non-disclosure agreement (NDA). A key element was the inclusion of a penalty clause – an enforcement mechanism that significantly enhances the practical effectiveness of confidentiality obligations. Early in the negotiation process, the supplier, a publicly listed U.S. company, objected to the clause, claiming that, due to its public company status, it would be required to disclose such a penalty in its financial reports.
We conducted a thorough analysis of publicly available information about the supplier’s business scale, market position, and disclosure obligations under U.S. regulations. Our findings demonstrated that the company’s turnover was so substantial that the proposed penalty – linked solely to the limited proof of concept phase – represented an immaterial portion of its revenue and provided no rational basis for any reporting requirement.
In the end, the agreement was signed on our client’s terms – with full protection of confidential information and a clearly defined enforcement mechanism in place.
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