Threat assessment
Liquidated Damages
Liquidated damages clauses pre-set financial penalties for breach. In NDAs they can create disproportionate exposure relative to the deal size.
What it is
Liquidated damages agree in advance on compensation for breach, instead of proving actual losses in court.
Why it matters
A fixed per-day or per-breach penalty can accumulate quickly for confidentiality disputes where harm is hard to quantify.
Red flags
- Daily penalties without cap
- Liquidated damages plus uncapped indemnity (double exposure)
- Penalties unrelated to reasonable estimate of harm
Safer alternatives
- Cap total liquidated damages
- Limit to proven direct damages only
- Exclude where local law treats clause as unenforceable penalty
NDAShield perspective
Pair review with indemnification and jurisdiction — enforcement varies by governing law.