03.10 Letter of Intent, Non-Disclosure and Non-Use Agreement

03 Contract Law

So-called Letters of Intent are often concluded in the course of contract negotiations. These also included non-disclosure agreements. The latter can of course also be agreed separately. In my opinion, however, a non-disclosure agreement is not sufficient in many cases. In addition, a non-use agreement is also required.

Letter of Intent

The term «Letter of Intent» (short «LoI») is not defined anywhere in Swiss law. In legal practice, a LoI is usually concluded with a view to the conclusion of a main contract. A.i., the conditions for the contract negotiations will be regulated, in particular who bears the costs incurred, nota bene if the main contract is not concluded. Typically, a LoI does not oblige to conclude the main contract (!), but regulates, a.i., the consequences of the failure to conclude the main contract. A simple example is the case in which prospective buyers of a house, which still requires extensive preparatory work on the part of the seller or the estate agent, undertake to pay a certain amount for the corresponding expenses and a new tender if the purchase is not concluded (legally also called «forfeitmoney»).

Non-Disclosure Agreement

A Non-Disclosure Agreement (short «NDA») is a confidentiality agreement. The agreement contains the promise not to disclose information to third parties, that is not known to them. Thus, part of an NDA can only be what is not already known to third parties. In addition, it is important that a confidentiality agreement is combined with a contractual penalty (CO 160 ff.), which must also be high enough to «motivate» the obligated party to comply with it. A disproportionately high contractual penalty can, however, be reduced to an acceptable level by the judge in a dispute (CO 163). An NDA without penalty is like a tiger without teeth.

Non-Use Agreement

Especially with regard to innovations, practice shows that an NDA is not enough. In addition, a Non-Use Agreement (short «NUA») is required, which not only prohibits the obligated party from disclosing secret information to third parties, but also from using this information itself and unauthorised by the owner, or from supporting third parties in their use. This agreement must also be combined with a contractual penalty (see above).

03 Contract Law