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<strong>The Limits Of Legal Tech</strong>

Legal Tech

The Limits Of Legal Tech

Digitization is finding its way into all industries and corporate divisions, including contracts. Contracts can be drawn up and signed electronically, but negotiating and concluding agreements still involves much manual effort. In the case of non-disclosure agreements, standardization and the associated automation would make sense.

Confidentiality agreements (also called Non-Disclosure Agreements, in short: NDA) are now widespread in corporate practice. Time and again, companies are forced to disclose certain information that is private to external third parties. When buying a company, for example, the potential buyer must be able to get an idea of ​​the company’s situation.

For example, service providers receive detailed insight into essential data stocks in cloud migration. Companies face a challenge: They take a high risk when confidential information is disclosed. If information worth protecting falls into the wrong hands, the company’s existence is sometimes even threatened.

A non-disclosure agreement not only creates a basis of trust but is also often an indispensable prerequisite for later cooperation. Although it is sometimes seen as an annoying accessory or a necessary evil, it is an essential part of everyday business life. And yet her degree still causes problems and creates uncertainty in many places.

Typical Content Of NDAs

The difficulties already begin with the drafting of a non-disclosure agreement. A look at the documents used in practice shows the endless variety of design options, creating legal uncertainty. The reason for this is simple: There has yet to be uniform, cross-industry specifications. Companies have set their patterns. The confidentiality agreements, therefore, vary significantly in length and content.

Typically, confidentiality agreements contain definitions of terms and lists of obligations. The standard components are also the agreement of a contractual penalty in the event of breaches of contractual obligations, the period of validity of the deal, and the legal consequences after its termination. Beyond that, however, there are hardly any limits to the imagination.

For example, clauses can make sense depending on the circumstances of the individual case and the industry affiliation of the companies involved. In innovation-driven areas, for example, a regulation on the right of prior use for patents is recommended.

problems At The End

In practice, a company regularly sends a draft corresponding to the internal standards to the contractual partner. The only question here is: Who decides which participating companies will submit their sample? The consequences should not be underestimated. As a rule, the regulations are accepted without significant changes, and lengthy negotiations do not occur. 

There are numerous reasons for this. In a bid process for IT services, in which several companies are requested, they will not want to spend valuable time insisting on adjustments to the non-disclosure agreement and thereby risk suffering a time disadvantage compared to other possible providers. In other business relationships, a party often requests the use of its non-disclosure agreement. There needs to be more authority or willingness to negotiate. 

Adjustments can only be implemented in exceptional cases and with many persuasions. Nevertheless, the risks are significant. Companies are faced with accepting preliminary or disadvantageous agreements or pushing for individual negotiations. In the first case, they can hope that the regulation in question will not stand up in court in case of a dispute. In the second case, the deal threatens to be delayed or even prevented in the worst case.

The Trade Secrets Act 2019

In 2019, the Trade Secrets Protection Act (GeschKe) came into force. In this new law, the German legislator wanted to regulate the protection of confidential information coherently. One searches in vain for uniform specifications for contractual regulations. The new rules have not resulted in less effort; on the contrary, they have increased uncertainty in some places.

With the introduction of the GeschIchTE, only such information is protected, for which the communication owner takes appropriate confidentiality measures. What the legislature understands by this in detail remains to be seen. However, a protective action can be the conclusion of applicable confidentiality agreements.

Due to the uncertainty about the legal requirements, companies have already started to conclude a separate confidentiality agreement for each project, no longer just for each contractual partner. This shows that the GeschGehG sometimes even caused more bureaucracy.

Support From Legal Tech

Despite action by the legislature, companies continue to face significant challenges. It is up to them to seek solutions that simplify the processes related to the conclusion of non-disclosure agreements. Technical solutions can help here. One building block is good contract management. 

Systems for the entire internal company processes in connection with contracts, from draft templates to the conclusion of the agreement to tracking terms and deadlines, have yet to be widespread. They make life easier for companies in many ways. For example, Bissantz & Company uses an IT system that makes it easy to find contracts and categorize them according to specific criteria. 

This makes it possible to quickly check whether confidentiality agreements have been concluded for all business relationships – which is also a significant advantage from a compliance perspective. In addition, the system guarantees a four-eyes principle before the contract is concluded.

Legal tech solutions promise further simplification. Even if legal tech is still a long way from automatically taking over a lawyer’s work, IT solutions in the legal field already contribute to more efficient work in many areas. They can also support you in reviewing non-disclosure agreements:

  1. With so-called self-service tools, non-disclosure agreements can be better assessed. With a kind of questionnaire, on which questions can be answered with yes and no, the most important regulations are gradually passed through.
  2. Some tools can also analyze a document independently. With the help of artificial intelligence (AI), they check the paper for specific clauses and can then amend them or add comments.
  3. Legal Tech also makes it possible to compare the clauses of a non-disclosure agreement: the recipient can reach their company standard with the contract’s provisions. For this purpose, it is first determined which conditions are usually used or accepted in one’s own company. The tool then compares this with the confidentiality agreement. It identifies deviations and can independently assess whether they require detailed examination – within the company or by a lawyer. The tool can also suggest alternative clauses as a compromise.

Alternatives To Legal Tech – Can Standardization Help?

The conclusion of non-disclosure agreements still causes a high manual effort in companies. Each contract must be reviewed and amended if necessary. This ties up capacities before the actual collaboration even begins. It would be most desirable for companies if a general standard were established, as is already the case for standard license agreements for software or media.

There are already advances in this direction, such as initiatives such as oneNDA or Liquid Legal. An electronic platform that companies can use to conclude standardized non-disclosure agreements is also a good solution. In the automotive industry, TISAX is such a platform for information security.

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