The AllBusiness.com Practical Guide to Confidentiality & Non-Disclosure Agreements

The AllBusiness.com Practical Guide to Confidentiality & Non-Disclosure Agreements

Overview

There are numerous instances where you may want to share confidential information with another party. But the key to doing so safely is making sure that the other party has already been bound to respect the confidential information you provide them and not use the information to your detriment.

One 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 Non-Disclosure Agreement.

In this Guide , we discuss when it makes sense to have a Confidentiality Agreement and what the key terms of this agreement need to include.

When Does a Confidentiality Agreement Make Sense?

When does it make sense to require another party to sign a Confidentiality Agreement? Well, there are probably many instances where it may be appro­priate. But the principal situations are those where 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 you may want to use a Confidentiality Agreement:

• Presenting an invention or business idea to a potential partner, investor, or distributor
• Sharing financial, marketing, and other information with a prospective buyer of your business
• Showing a new product or technology to a prospective buyer or licensee
• Receiving services from a company or individual who may have access to some sensitive information in providing those services
• Allowing employees access to confidential and proprietary information of your business in the course of their job

Mutual vs. Non-Mutual Agreements

Confidentiality Agreements come in two basic formats—a mutual agree­ment, or a one-sided agreement. Use the one-sided agreement when you are contemplating that only one side will be sharing confidential information with the other side. The mutual form is for situations where each side may potentially share confidential information.

Although there is always some appeal to using a mutual form of Confidentiality Agreement, you should shy away from the mutual form if you are not planning to receive confidential information from the other side. One way to decide this early on is to let the other side know that you don't want to receive any of their confidential information, so you don't see the need for a mutual form if they ask for one.

A sample one-sided form of Confidentiality Agreement is presented as Appendix A. A mutual Confidentiality Agreement is presented in Appendix B.

The Key Elements of Confidentiality Agreements

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 include:

• Identification of the parties
• Definition of what is deemed 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 it's 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 may also be a party to the agreement. Does the recipient expect to show the confidential information to a related or affiliated company? To a partner? To an agent? If so, then consider asking those other parties to also sign a Confidentiality Agreement or become parties to the one being signed by the main company.

What is deemed confidential?

This section of the agreement deals with defining what confidential informa­tion means. Is it any information? Is it information that is only marked in writ­ing as "confidential"? Can oral information conveyed be deemed confidential?

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