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What Is a Confidentiality Agreement?
A confidentiality agreement is a legally binding contract between two or more parties in which the parties agree that they will not share or profit from confidential information. Also known as a nondisclosure agreement or NDA, confidentiality agreements can be mutual, where both parties are required to maintain secrecy, or unilateral, where only one party must maintain secrecy.
Confidentiality agreements are particularly important in situations where the information is only valuable when secrecy is maintained. These trade secrets could be business-related or invention-related information. The confidentiality agreement obligates the recipient to keep the secret because once it's generally known, it's no longer holds the same value.
Information that's communicated orally can be challenging to enforce. Some recipients of oral information insist that only information that's conveyed in writing needs to be kept confidential. The usual compromise is that oral information can be considered confidential, but that the disclosing party has to communicate to the receiving party in writing after the disclosure that the oral statements are deemed confidential. It's generally a good idea to avoid relying on an oral confidentiality agreement.
Types of Confidentiality Agreements
The information that is covered under a confidentiality agreement is always unique. There are two main types of confidentiality agreements:
- Unilateral confidentiality agreement: This is where one party, such as a prospective licensee or investor, agrees that they won't disclose information from another party.
- Mutual confidentiality agreement: This type of confidentiality agreement is typically used when multiple parties, such as two businesses, begin working together and acknowledge that they will not share one another's information.
While there are two primary types of confidentiality agreements, they can be further divided into other categories depending on the situation:
- Standard nondisclosure agreement: This is the most common type of confidentiality agreement and can be used in almost any circumstance.
- Employee nondisclosure agreement: Companies use this type of confidentiality agreement when they hire new employees to ensure they will not discuss proprietary information outside of work.
- Inventor agreement: This type of confidentiality agreement is commonly used by inventors to protect their unpatented inventions when they are discussing what they created with relevant parties.
- Interview nondisclosure agreement: Companies use this type of NDA prior to interviews so they can speak more openly with candidates without worrying about information being later shared by rejected candidates.
Benefits of a Confidentiality Agreement
A confidentiality agreement, or NDA, helps individuals and businesses protect confidential information they may have to share with others for the sake of their business arrangement. The primary benefits of having parties sign confidentiality agreements include:
- Helps set and enforce consequences: A confidentiality agreement ensures that you can take legal action if the other party discloses proprietary information.
- Defines what's confidential: Every good confidentiality agreement should specify what information is confidential to protect proprietary information, trade secrets, and other details shared for the sake of the business arrangement. It is important to keep in mind that in certain circumstances, federal legislation gives immunity to whistleblowers.
- Preserves business relationships: Because confidentiality agreements make it clear what information is protected and what the consequence is for sharing confidential information, misinformation that could have damaged or even ended a business relationship can be avoided.
When a Confidentiality Agreement Makes Sense
While there may be many instances when having another party sign a confidentiality agreement may be appropriate, the primary situations are those where you want to share valuable information or an idea about your business that you would not want the other party to share or use without your approval.
You may want to use a confidentiality agreement if you are:
- Sharing marketing, financial, or other types of private information with prospective buyers
- Sharing technology or a product to a prospective licensee or buyer
- Presenting information or a business idea to a potential investor, partner, or distributor
- Receiving services from a contractor or company that could have access to sensitive information about the company
- Giving employees access to proprietary information during the course of their job
Image via Unsplash by cytonn_photography
Information Protected by a Confidentiality Agreement
As a general rule, a confidentiality agreement can protect any information that isn't available on public record. This could include proprietary information and intellectual property information, such as:
- Trade secrets
- Scientific information
- Secret formulas
- Computer technology
- Prototypes and samples
- Proprietary software
- Concepts for future services, products, or practices
Other types of information you can protect with a confidentiality agreement include:
- Business communication
- Manufacturing processes
- Production methods
- Business information, strategies, and operational procedures
- Sales plans, materials, and marketing information
- Marketing campaigns and projects
- Test data and employer test results
- Transaction details and other financial information
- Details about sales contracts, clients, and customers, including business relationships, contracts, and client lists
Components of a Confidentiality Agreement
A confidentiality agreement must have the following components:
- Definition of confidential information: The confidentiality agreement should state the type of information that is being protected by the NDA.
- Involved parties: The agreement should clearly identify the receiving party, disclosing party, and any other officers, directors, agents, or representatives involved.
- Why the recipient will know the information: Confidentiality agreements should include a statement explaining why the receiving party must know the confidential information. For example, they may need to know the information to interview for a role successfully or to perform work duties.
- Exclusions on confidential information: This part of the confidentiality agreement could include information known prior to the agreement, such as information obtained through public knowledge, a third party, or information learned independently. The recipient may be required to prove that this information is nonconfidential or explain how they learned it.
- Time frame: This states the date that the agreement goes into effect and when it expires (if it does). The NDA could expire after an event occurs, after a set length of time, or never. A typical time frame for a confidentiality agreement is two to five years, although you can modify it for whatever terms you need. You could also include that the disclosing party isn't giving up intellectual property rights even when the term ends.
- Receiving party's obligations: This part of the confidentiality agreement states the receiving party's obligation, including the nondisclosure agreement, incorrect use of proprietary information, and steps that they must take to ensure the information remains confidential. It could also state that the recipient is prohibited from working in the same industry for a set period of time if they leave the company's employment.
- Injunctive clause: This clause gives the party disclosing the information the right to stop the receiving party from breaching the agreement before the breach occurs through an injunction or court order.
- Names, dates, and signatures: Finally, all parties must carefully read, sign, and date the agreement.
Consequences of Not Using a Confidentiality Agreement
In the event that you do not use a confidentiality agreement, the worst-case scenario is that your company could lose potential earnings, brand recognition, or possible business opportunities, as another party might profit off your confidential information and ideas. While a confidentiality agreement cannot guarantee that someone will not try to profit off your information or ideas, it does ensure you will be legally compensated if it does happen.
If you need help putting together a confidentiality agreement, we have a team of lawyers with experience in over 30 different industries to help you protect your information.
Meet some of our Confidentiality Agreement Lawyers
I love contracts - and especially technology-related contracts written in PLAIN ENGLISH! I've worked extensively with intellectual property contracts, and specifically with IT contracts (SaaS, Master Subscriptions Agreements, Terms of Service, Privacy Policies, License Agreements, etc.), and I have built my own technology solutions that help to quickly and thoroughly draft, review and customize complex contracts.
Founder and owner of Grant Phillips Law.. Practicing and licensed in NY, NJ & Fl with focus on small businesses across the country that are stuck in predatory commercial loans. The firm specializes in representing business owners with Merchant Cash Advances or Factoring Arrangments they can no longer afford. The firms clients include restaurants, truckers, contractors, for profit schools, doctors and corner supermarkets to name a few. GRANT PHILLIPS LAW, PLLC. is at the cutting edge of bringing affordable and expert legal representation on behalf of Merchants stuck with predatory loans or other financial instruments that drain the companies revenues. Grant Phillips Law will defend small businesses with Merchant Cash Advances they can no longer afford. Whether you have been sued, a UCC lien filed against your receivables or your bank account is levied or frozen, we have your back. See more at www.grantphillipslaw.com
I am a software developer turned lawyer with 7+ years of experience drafting, reviewing, and negotiating SaaS agreements, as well as other technology agreements. I am a partner at Freeman Lovell PLLC, where I lead commercial contracts practice group. I work with startups, growing companies, and the Fortune 500 to make sure your legal go-to-market strategy works for you.
Pico & Kooker provides hands on legal advice in structuring, drafting, negotiating, interpreting, managing and enforcing complex high value commercial transactions. Adept at navigating complex environments, Jonathan has extensive expertise advising clients on a wide range of long- and medium-term cross border and financial engagements, including public tender participation, PPPs, export sales agreements as well as policy and regulatory formulation. Jonathan and his co-founder, Eva Pico have represented and acted on behalf of lenders, global corporations and other market participants across a range of industries including financial services, infrastructure and transportation. As outside counsel, Pico & Kooker, has developed a strong rapport and working relationship with their clients and appropriately work with their in-house teams to increase consistency, processes and procedures. The company employs a unique approach as practical, business minded outside legal counsel who believe in proactively partnering with their clients to achieve desired results while managing and engaging key stakeholders. They listen to their clients to develop customized solutions that best meet their needs while aligning with their objectives, vision and values. Some representative transactions include advising the World Bank on project finance and portfolio options to address the costs and risks associated with integrating renewable power sources. Also advising them as legal counsel, Jonathan developed policies, regulation and models for emerging market governments entering into public-private partnerships. In addition to his work with the World Bank, Jonathan has worked with some of the world’s largest consulting firms, financial institutions and governmental organizations, including the United Nations, the governments of the US, UK and select African countries. Through out his career, he has worked with large, multinational corporations both by consulting in-house and acting as outside counsel on large cross-border transactions. He graduated from Georgetown University’s law school and was admitted practice as a lawyer in New York, England and Wales and, as a foreign lawyer, in Germany. He has written several articles for trade journals and has been cited by several business publications in worldwide. Jonathan is a native English speaker and has high proficiency in German and a functional understanding of Spanish.
I am a solo practitioner and the founding attorney at Uzay Law, PLLC, which provides legal services in O non-immigrant visas, EB-1 and EB-2 NIW employment-based green cards, family-based green cards, citizenship and naturalization as well as contract review, drafting and negotiation for creatives. I am licensed to practice law in Texas. Prior to practicing law, I worked as a producer and film consultant for over fifteen years. I was previously in charge of the film grant program at the Conference on Jewish Material Claims Against Germany where I oversaw the funding of award-winning Holocaust films. I am fluent in English and Turkish.
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