Confidentiality and Nondisclosure Agreements

There are numerous instances where it is desirable to share confidential information with another party. But the key to doing so is making sure that the other party will be bound to respect the confidential information you provide them and not use the information to your detriment.

The common way to protect the secrecy of confidential information given to another party is through the use of a confidentiality agreement, which is sometimes also referred to as a nondisclosure agreement.

When does it make sense to require another party to sign a confidentiality agreement? Well, there are probably many instances where it might be appropriate. The principal situations are when you wish to convey something valuable about your business or idea but you want to ensure that the other side doesn't steal the information or use it without your approval.

Here are some typical situations where a confidentiality agreement is often used:

• An invention or business idea will be presented to a potential partner, investor or distributor
• Financial, marketing and other information will be shared with a prospective buyer of your business or co-venturer
• A new product or technology will be shown to a prospective buyer or licensee
• A company or individual will be providing you with services and will have access to some sensitive information in providing those services
• Employees will have access to confidential and proprietary information of your business in the course of their job

Confidentiality agreements come in two basic formats — a mutual agreement and a one-sided agreement. The one-sided agreement is used when only one side will be sharing confidential information with the other side. When each side shares confidential information a mutual form is needed.

While there is always some appeal of a mutual form, it may be a good idea to shy away from a mutual form if you really aren't planning to receive confidential information from the other side. One way to ensure this early on is to let the other side know that you don't want to receive any of their confidential information and you don't see the need for a mutual form if they ask for one.

Click here to view a sample non-mutual form confidentiality agreement or here to view a sample mutual confidentiality agreement.