The Key Elements of Confidentiality Agreements | Company Activities & Management > Contracts & Bids from AllBusiness.com
Facebook Twitter Google+ You Tube RSS Feed

The Key Elements of Confidentiality Agreements

More

Confidentiality Agreements don't have to be long and complicated. In fact, the good ones usually don't run more than a few pages long.

The key elements of Confidentiality Agreements are:

  • Identification of the parties
  • Definition of what is defined to be confidential
  • The scope of the confidentiality obligation by the receiving party
  • The exclusions from confidential treatment
  • The term of the agreement

The Parties to the Agreement

The parties to the agreement is usually a straightforward description set forth at the beginning of the contract. If its an agreement where only one side is providing confidential information, then the disclosing party can be referred to as the Disclosing Party and the recipient of the information can simply be referred to as the Recipient.

The one tricky part here is to think about whether any other people or companies should also be a party to the agreement. Will the recipient expect to show the confidential information to a related or affiliated company? To a partner? To an agent? If so, then you should consider asking those other parties to also sign a Confidentiality Agreement or become parties to the initial agreement.

What is Deemed Confidential?

This section of the Agreement deals with defining what confidential information means. Is it any information? Is it information not available from other sources? Is it information that is only marked in writing as confidential? Can oral information conveyed be deemed confidential?

On the one hand, you the disclosing party want this definition to be as broad as possible, so as to make sure the other side doesn't find a loophole and starts using your valuable secrets.

On the other hand, if you are the recipient of the information, you have a legitimate desire to make sure that the information that you are supposed to keep secret is clearly identified and that you know what you can and cannot do.

Oral information in particular can be tricky to deal with. Many recipients of information will insist that it is only information conveyed in writing that should be kept confidential. And of course, the party giving oral information will say that that is too narrow. The usual compromise is that oral information can be deemed confidential information, but that the disclosing party has to confirm to the other side in writing sometime shortly after it was disclosed, so that the receiving party is now on notice as to what oral statements are deemed confidential. Click here to view a form of Letter Confirming Disclosure of Confidential Information.

Scope of the Confidentiality Obligation

The core of the Confidentiality Agreement is a two part obligation on the receiver of the information — that he has to keep the confidential information confidential and that he can't use the confidential information himself. This usually means that he has to take reasonable steps to prevent others from gaining access to this private information.

If the scope of the Confidentiality Agreement is broad enough, then you can sue for damages or to stop them if they breach their confidentiality and non-use obligations.

The Exclusions from Confidentiality Treatment

Every Confidentiality Agreement will have certain exclusions from the obligations of the receiving party. These exclusions are intended to address situations where it would be unfair or too burdensome for the other side to keep the information confidential.

Common exclusions include:

  • Information already known to the recipient
  • Information already publicly known, excluding wrongful release to the public
  • Information independently developed by the recipient without reference or use to the confidential information of the disclosing party
  • Information disclosed to the recipient by some other party who has no duty of confidentiality to the disclosing party

The Confidentiality Agreement can also deal with the situation where the recipient of the information is forced to disclose the information through a legal process. The recipient should be allowed to do so if forced by court order, without breaching the Confidentiality Agreement, so long as the recipient has warned the disclosing party in advance of the legal proceeding.

Term of the Agreement

How long should the Confidentiality Agreement last? Some attorneys would argue that the Confidential Agreement should last forever. Why should someone have the right to use your confidential information at any time?

But if you are the recipient of the confidential information, you will likely insist on a definite term where the agreement ends. After all, most information becomes useless after a certain number of years, and the cost of policing confidentiality obligations can become expensive if it is an endless obligation.

So if you are going to agree to a term, what is reasonable? Well, it really depends on the industry you are in and the type of information conveyed. In some businesses, a few years may be acceptable, since the technology may change so fast so as to render the information likely worthless.

Agreements (if they have a term) generally have a time limit of 1 year to 5 years. But your Confidentiality Agreement can also state that, even if the term is ended, the disclosing party isn't giving up any other rights that it may have under copyright, patent, or other intellectual property laws.

Other Provisions for Confidentiality Agreements

You also might want to add other provisions to your Confidentiality Agreement, depending upon the situation. Here are some ideas:

  • Employee Solicitation. If the recipient has significant access to your employees, you might want to insert a clause that says that the recipient is prevented form soliciting or hiring your employees for a period of 12 months. The other side will sometimes agree to that, with some carve outs. For example, they might want the limitation to only apply to those employees that they have come into contact with during their review of information or interviews.
  • Jurisdiction in a Dispute. If you are the disclosing party, you want to make sure that if there is any dispute as to whether the other side has lived up to its obligations, the dispute will be handled exclusively under the laws of your state and, perhaps, physically in your city. You want the most favorable construction possible of the agreement. Also, you don't want to have to travel far away and incur additional costs to enforce your Confidentiality Agreement.
  • Injunction. You want to make sure that you have a clause that gives you the right to injunctive relief to stop the other side from breaching the agreement. This is simply a clause that says that you can get a court order stopping the breaching act (as opposed to money damages alone).
  • No Rights in the Receiving Party. It is sometimes helpful to have a clause that says that the other side doesn't have any rights to your ideas, or even a right to enter into a deal with you, just because you are going to share confidential information with them .

Newsletter

Weekly Roundup

Sign up for our weekly Experts roundup, delivered to your inbox each Saturday morning.

Most Recent From our Experts

AllBusiness Experts
;
Close

Real Business Owners, Real Business Advice!

Sign up for practical, real-world solutions from successful business owners delivered to your inbox each Saturday morning. FREE.