Contractual Protection Of Trade Secrets And Confidential Information: Non-Disclosure Agreements (NDAs) In Light Of Turkish Law Of Obligations And Court Of Cassation Jurisprudence

1. Introduction

In the global economic order, as information has become a more strategic form of capital than tangible assets, the legal mechanisms designed to protect it have necessarily evolved. Non-Disclosure Agreements ("NDAs") function as the legal safeguard of trust at every level of the commercial ecosystem, from a simple business meeting to multi-billion-dollar mergers and acquisitions ("M&A") transactions.

Although Turkish law does not recognise NDAs as an expressly regulated "typical" (named) contract under the Turkish Code of Obligations ("TCO";Türk Borçlar Kanunu– "TBK"), doctrine and judicial practice have developed a robust framework for these agreements. In particular, global reforms—such as the Victims and Prisoners Act 2024 in the United Kingdom, entering into force in 2025—have begun to redraw the boundaries of NDAs.

2. Legal Nature and Structure of NDAs

An NDA, in its broadest sense, is an unnamed contract concluded between the holder of confidential information and the persons with whom such information is shared, whereby the duty of confidentiality arising from the principle of good faith is concretised through contractual provisions. Within the framework of the principle of freedom of contract (TBK Art. 26), the parties may freely determine the scope of confidential information, the protection mechanisms, and the sanctions applicable in the event of breach.

3. Unnamed and Sui Generis Character

In Turkish legal doctrine, NDAs are regarded as "unnamed contracts" (innominate contracts), since their essential elements are not objectively regulated by statute. Such undertakings may sometimes form part of typical contracts (e.g., employment, agency/mandate, or works contracts), while in other instances they appear as entirely independent legal transactions.

The General Assembly of Civil Chambers of the Court of Cassation (Yargıtay Hukuk Genel Kurulu) (E. 2021/477, K. 2023/179) emphasised that confidentiality undertakings preserve their character as an independent contract even where they are executed as a separate document from the employment agreement, because they include obligations relating to the post-termination period. This ensures that, even if the principal contract (for instance, an employment contract) is invalid for any reason, the parties' confidentiality obligations may survive as "post-contractual obligations".

4. The Issue of Consideration in Comparative Perspective

In Anglo-American legal systems—particularly in England and Wales—an element of "consideration" is generally required for a contract to be enforceable as a "simple contract". By contrast, this requirement does not apply to contracts executed as a "deed". In NDAs, consideration is often provided not by a monetary payment, but through value-bearing elements such as the disclosure of confidential information, granting access, or mutual undertakings. In international practice, to eliminate potential consideration disputes, it is common either to include nominal consideration language in the agreement or—where permitted under the governing law—to execute the NDA in deed form.

Under Turkish law, consideration is not a validity requirement. However, whether a contract is "gratuitous" or "onerous" may be among the factors considered when the judge exercises the power to reduce damages or a penalty clause (tenkis) in the event of breach.

5. Confidential Information and Trade Secrets: Defining Scope and Conditions of Protection

In a legal dispute, determining whether information is "confidential" generally requires the cumulative presence of both subjective and objective criteria. "Confidential information" refers to any data the parties wish to keep confidential under the agreement, whereas "trade secrets" constitute a more qualified category of information at the core of statutory protection.

6. Elements of a Trade Secret and Objective Criteria

Judicial decisions commonly require the existence of the following three core conditions for information to qualify as a trade secret:

1. Secrecy and Inaccessibility: The information must not be readily accessible to sector professionals or third parties. For example, customer lists in the logistics sector that can be found through a basic internet search do not qualify as "secrets", even if the contract provides otherwise. (Yargıtay 11th Civil Chamber, decision dated 18.02.2020, E. 2018/4411, K. 2020/1668; İzmir Regional Court of Appeal (BAM) 3rd Civil Chamber, decision dated 20.02.2020, E. 2019/3020, K. 2020/216)
2. Economic Value: Keeping the information confidential must provide a competitive advantage, or there must be a risk of economic harm if competitors obtain it. (Yargıtay 9th Civil Chamber, decision dated 18.10.2016, E. 2015/34746, K. 2016/18078; Istanbul Regional Court of Appeal 43rd Civil Chamber, E. 2020/1577, K. 2023/1073)
3. Intention to Keep the Information Confidential: The information holder must have taken reasonable measures that reflect, to the outside world, an intention to keep the data confidential. Executing an NDA is one of the most concrete legal manifestations of such intention. (İzmir BAM 3rd Civil Chamber, decision dated 20.02.2020, E. 2019/3020, K. 2020/216)

7. Strategic Use of NDAs in M&A Transactions

In M&A transactions, the NDA assumes the role of a "gatekeeper". The due diligence process—where the buyer reviews the target company's financial, legal, and operational records—proceeds under the legal protection shield provided by the NDA.

8. Due Diligence and Data Room Security

Due diligence is a risk-analysis exercise enabling the buyer to make an acquisition decision "in light of the necessary information". To ensure security of the data shared during this process, NDAs often include specialised clauses such as:

• Permitted Purpose / Non-Use: The information may be used solely for evaluating the transaction; the buyer may not use it to improve its existing business or develop a competing strategy.
• Permitted Recipients: Transfer of information is limited to specified employees or advisers (lawyers, auditors, etc.). The buyer may be held directly liable for breaches by such persons pursuant to TBK Art. 116 (liability for acts of auxiliary persons).
• Carve-Outs (Exceptions): Any professional NDA should clearly set out exceptions where confidentiality obligations do not apply. In practice these typically include: (i) information that becomes public without the fault of the receiving party; (ii) information lawfully known to the receiving party prior to disclosure; (iii) information independently developed by personnel without access to the confidential information; (iv) information lawfully obtained from a legitimate third party not bound by confidentiality; and (v) information that must be disclosed due to legal compulsion (such as a court/prosecutor decision or a request by competent administrative authorities). For the last category, it is commonly also stipulated that the disclosing party should, to the extent possible, give advance notice to the disclosing party and limit the disclosure to what is strictly required.

9. Penalty Clauses and the Damages Regime in NDAs

In NDAs, the principal obligation is typically an obligation "not to do" (a non-performance obligation). Accordingly, once a breach occurs, specific performance (i.e., making the disclosed secret confidential again) is practically impossible. Disputes therefore largely revolve around damages claims and penalty clause provisions. Because it is often difficult to quantify the economic value of confidential information concretely, parties frequently provide for a contractual penalty or a lump-sum damages mechanism; this both alleviates the burden of proving loss and enhances deterrence.

Approach in Common Law Systems

In Common Law, "penalty" clauses are generally prohibited and treated as unenforceable. Since it is also typically very difficult to calculate the loss in advance in confidentiality breaches, parties under English law often stipulate "liquidated damages" (pre-agreed damages). For such an amount to be valid, the classic approach requires that it be a genuine and reasonable pre-estimate of the loss likely to arise from breach.

This approach was relaxed by the modern test set out in Cavendish Square Holding BV v Talal El Makdessi [2015] UKSC 67. Today, the core question is whether the stipulated sum protects the innocent party's legitimate interest and is not exorbitant or unconscionable, and whether it complies with proportionality.

Penalty Clauses under Turkish Law

Under TBK Art. 179 et seq., penalty clauses are generally valid; Turkish law does not recognise a general Common-Law-style "penalty doctrine". Turkish doctrine and Court of Cassation jurisprudence distinguish penalty clauses from lump-sum damages: lump-sum damages presuppose the existence of loss but remove the need to prove the quantum, whereas penalty clauses primarily function as a deterrent and pressure mechanism; they may be claimed even if no loss is suffered, and proof of fault is required for claiming damages exceeding the penalty.

• Dual Function: A penalty clause operates both as (i) a pressure tool to compel performance (penal function) and (ii) a compensation mechanism similar to lump-sum damages that facilitates proof (compensatory function).
• No Requirement of Loss: Even if the creditor (the holder of the confidential information) has suffered no damage, it may still claim the agreed penalty (TBK Art. 180). If actual loss exceeds the penalty amount, the excess may be claimed only upon proving the debtor's fault. Pursuant to TBK Art. 182, the court may reduce an excessive penalty to an equitable amount, and Court of Cassation jurisprudence applies this review consistently.

10. Prohibition of Reduction for Merchants and the "Economic Ruin" Exception

Under the "prudent merchant" principle (TTK Art. 18/2), reduction (tenkis) of penalty clauses between merchants on the ground of excessiveness is, as a rule, prohibited pursuant to TTK Art. 22. Turkish judicial practice, however, recognises two significant exceptions:

1. Economic Ruin: If the penalty amount is so severe that it endangers the merchant's economic existence or may lead to its collapse, reduction may be made within the framework of TBK Art. 27 (contrary to morality and public order).
2. Duty of Prudence: The merchant party must assess its payment capacity and risks when agreeing the penalty amount. However, where the creditor (the secret holder) knowingly causes the breach, reduction may be considered under the principle of good faith.

11. Recent Reforms in Anglo-American Practice: UK Victims and Prisoners Act 2024

In the United Kingdom, Section 17 of the Victims and Prisoners Act 2024, which entered into force on 1 October 2025, categorically prohibits the use of NDAs "to prevent the reporting of a crime or cooperation with judicial authorities". Under this regime:

• If a person is a victim of sexual harassment, violence, theft, or fraud (or a witness who reasonably believes they are a victim), any confidentiality clause preventing them from disclosing the incident to the police, a lawyer, a doctor, or close family members will be deemed void.
• Employers may no longer include absolute confidentiality clauses in employment contracts or settlement agreements (mutual termination/settlement arrangements) stating, in effect, "under no circumstances may you share these events with any third party".
• NDAs must expressly set out these statutory rights under a "Permitted Disclosures" heading to avoid the risk of the entire agreement being treated as invalid.

12. NDAs in Private International Law and Jurisdiction

In NDAs where the parties are located in different countries, the issues of the applicable law and competent forum are of vital importance.

Choice of Law and the Theory of Characteristic Performance

Pursuant to Art. 24 of Law No. 5718 on Private International Law and Procedural Law ("MÖHUK"), the parties may expressly choose the law governing the contract. Absent a choice of law, the contract is governed by the law of the place of business or habitual residence of the party performing the "characteristic obligation" (i.e., the party assuming the confidentiality obligation and the burden of protecting the information).

Public Policy Intervention

While the application of foreign law is the rule in private international law, a "public policy intervention" arises if applying that law produces results manifestly incompatible with the fundamental structure of Turkish society or Turkish public order. For example, a foreign court decision compelling the concealment of a crime—contrary to the UK's 2025 reforms—would not be recognised or enforced in Türkiye on public policy grounds pursuant to MÖHUK Art. 54(c).

13. Arbitration and Confidentiality

Confidentiality disputes, by their nature, are among the disputes most suitable for "confidential" resolution. Since court proceedings are, as a rule, public, litigation before state courts may create a risk that trade secrets will be disclosed through the case file. Accordingly, in international commercial practice it is standard to provide for arbitration clauses in NDA disputes. As NDAs relate to proprietary rights, they are considered arbitrable under Turkish law and international practice.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.