What is a Confidentiality Agreement?
A Confidentiality Agreement, also known as “Non-Disclosure Agreement or NDA”, is a contract between two parties, whereby the party, known as the receiving party, agrees to refrain from disclosing confidential information received by course of business or otherwise from another party, also known as the disclosing party. The receiving party also agrees thereby to use his best endeavor to protect this information and not to use it for unauthorized purposes.
Why and when is a Confidentiality Agreement necessary?
Confidentiality Agreements create a measure to secure and safeguard a business’s sensitive information, and are crucial for almost all kinds of businesses, such as:
- Start-ups with new ideas or revolutionary products, who are in need of investors, or other partners to execute or otherwise help bring their services or products to the market, and whose ideas must be protected against being disclosed or copied.
- More established businesses that rely on trade secrets or know-how as a significant part of their assets and intellectual property portfolio. In these cases, Confidentiality Agreements become an important means of intellectual property protection for their businesses.
- Contractual relations where the counterparty may be a direct competitor, or someone who could benefit economically from certain confidential information.
- Employment or freelance contracts, where the job would expose an employee to confidential information or trade secrets.
- Certain professions, where the client needs to disclose confidential information, such as lawyers and accountants.
What is considered confidential information?
Confidential information can be any information disclosed, orally or in writing, in circumstances giving rise to an obligation of confidence on the receiving party. It can be technical and/or commercial information developed independently by the disclosing party.
This can include novel ideas, trade secrets, know-how, legal documents, business plans, information around a new product, designs, art or musical work, computer software etc. It can also include marketing information, such as advertising plans or customer lists.
That said, the definition and description of confidential information and what they include is considered a key element in a Confidentiality Agreement. While it might be particularly arguable between the parties and their lawyers what to include in this definition, and how broad or limited the coverage should be, it is sensible to specifically define the information to be disclosed and to limit disclosure to the information outlined in the Agreement.
Additionally, there are certain sorts of information that are typically excluded from the Confidentiality Agreement, such as public information, information already known by the receiving party or lawfully received from a third party, or information that the receiving party is obliged to disclose to third parties by law.
How can a Confidential Agreement guarantee non-disclosure?
Generally speaking, the Confidentiality Agreement concludes that, during the timeframe specified therein, the receiving party is obliged to keep the confidential information secure. This may include not copying, reproducing, disassembling or even reverse engineering it. If this obligation is breached, then the disclosing party may seek legal or equitable remedies in response. Therefore, for a Confidentiality Agreement to be effective, it must explicitly provide a remedy in the event of a breach. The most effective remedy is indemnification and/or injunctive relief that would discourage wrongful disclosure and protect the disclosing party from further injury.
What should a typical Confidential Agreement include?
The most important terms to be included in a confidentiality agreement are:
- The parties to the Agreement
- A description of confidential information; and the exclusions thereof
- the intended use and limitations on use of the confidential information
- the agreed means of identifying the confidential information, such as a “CONFIDINTIAL” stamp on document
- a clear confidentiality period
- a description of parties and persons bound, particularly third parties such as the employees of the receiving party
- strong enforcement and remedies provisions
The use of a “blanket” or general confidentiality agreement is not recommended and it is advisable that each agreement must be specifically customised to the needs of the parties, the purpose of disclosure, the relationship and the nature of the confidential information which is involved. It is therefore advisable that you consult a suitably skilled attorney that understands the nature of confidential information, to ensure that this vital business asset is adequately protected.
For further information and assistance with your confidentiality agreement, please contact Nour El Bezre (N.Bezre@fractalslegal.com).
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.