NNN Agreements: Our “Here You Go” E-mail

Our international lawyers draft more NNN Agreements than any other agreement. These agreements are used to protect your confidential information. They protect confidentiality and they protect against the company or person to whom you reveal the information from using that information to compete against you or go around you to your own customers or clients. The three Ns are for Non-Compete, Non-Circumvent, and Non-Disclosure. These contracts are commonly used before revealing anything important to anyone, such as your technology, designs, or customer lists, whether those qualify for trade secret protection or not.

Because our international attorneys so often draft NNN Agreements, we have a template email we send to our clients (modified each time to suit the particular situation) explaining the customized NNN Agreement we have just drafted for them and explaining what they should do with that agreement going forward. The below is such an email and I write about it because it not only explains in a real life way how NNN Agreements should be employed, it also explains what makes NNN Agreements different from a traditional NDA Agreement and why NNN Agreements are so important.

Attached please find an English/Chinese draft NNN Agreement for use with [XYZ company]. My comments follow:

1. This is not a traditional US-style NDA agreement. A traditional NDA agreement relies on the concept of trade secrecy. Under this sort of an agreement only something that qualifies now and later as a trade secret is entitled to protection. As a practical matter, the information you will be disclosing will almost never meet the technical legal standard for trade secrecy. Therefore this NNN takes a different and more effective approach. We write this to prevent your counter-party from using the information you give them in competition with you.
2. The agreement has no set term. In other words, [XYZ Company] can NEVER use your confidential information; it is a permanent obligation.
3. The agreement holds the receiving party [XYZ Company] liable for any damages caused by a related party in violation of the agreement as if the act were committed by the receiving party.
4. The agreement provides for contract damages in a specific monetary amount for every act of breach. This provision provides two primary benefits. First, it makes clear to [XYZ Company] that it will face real and quantifiable consequences each time it breaches the NNN agreement. Second, a specific monetary amount provides for a specific minimum level of damages which then provides a court with the basis for a pre-judgment seizure of assets. A credible threat of your seizing [XYZ Company] assets greatly increases the likelihood of [XYZ Company] abiding by your NNN agreement. Note that this amount needs to be a reasonable pre-estimate of your damages as a result of XYZ Company’s violation of the NNN. The amount we have set for contract damages in your contract is fairly standard for this sort of transaction in _________ [country].
5. Note that this agreement gives you the right to enter into an NNN with a subcontractor. Note also though that regardless of whether you  enter into such a separate agreement, the receiving party will be liable for any damages caused by a subcontractor in violation of this agreement on the same basis as if the act were committed by the receiving party.
6. I was able to confirm [XYZ Company’s] name and address information against the relevant government website. According to available government data, ________’s title at the company is manager and executive director and I have inserted this information into the agreement.
7. If XYZ Company accepts the terms of the agreement, you should go first by signing and dating this agreement and then sending it to [XYZ Company]. You should wait until you get this agreement back, fully executed, before you disclose any confidential information. 

Please review and get back to me with any questions.

We will be discussing the practical aspects of Chinese law and how it impacts business there. We will be telling you what works and what does not and what you as a businessperson can do to use the law to your advantage. Our aim is to assist businesses already in China or planning to go into China, not to break new ground in legal theory or policy.