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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
Attorney Greg Corbin is the founder and principal of Signal Law in Denver, Colorado. A top-rated trial and transactional lawyer with more than seven years of total legal experience, Mr. Corbin provides exceptional counsel and support to clients across the greater Denver metro and surrounding areas who have legal needs involving any of the following: business and corporate law; contracts and agreements; incorporations, partnerships and other entity formation and dissolution services; and ongoing business counsel for emerging and expanding commercial enterprises. Utilizing the latest in cost-saving technologies and advanced automation, Mr. Corbin has established his practice as a modern law firm ready for the future, and he strives to provide the highest level of representation to his clients and help them achieve their goals and the favorable outcomes they seek as efficiently and cost-effectively as possible. He has gained a reputation for his innovative solutions as well as his transparent pricing structure and responsiveness when dealing with his clients. In recognition of his outstanding professionalism and service, Mr. Corbin has earned consistent top rankings and endorsements from his peers as being among the top lawyers in his region for business law and transactions. A 2008 graduate of Kansas State University, Mr. Corbin obtained his Juris Doctor from Boston University School of Law in 2013. The Massachusetts Bar Association admitted him to practice that same year, and the Colorado State Bar Association admitted him in 2015. Mr. Corbin is an active member of the Denver Bar Association and the Colorado State Bar Association, among his other professional affiliations, and he supports his local community through his involvement with Project Worthmore and Biking for Baseball, where he serves on the boards of directors.
The Law Office of David Watson, LLC provides comprehensive and individualized estate-planning services for all stages and phases of life. I listen to your goals and priorities and offer a range of estate-planning services, including trusts, wills, living wills, durable powers of attorney, and other plans to meet your goals. And for convenience and transparency, many estate-planning services are provided at a flat rate.
Experienced contracts and business attorney with years of experience advising entrepreneurs and small businesses. Currently act as general counsel to multiple companies with millions in annual revenue. My specialty is creative legal problem solving with solutions tailored to your business.
My career interests are to practice Transactional Corporate Law, including Business Start Up, and Mergers and Acquisitions, as well as Real Estate Law, Estate Planning Law, and Intellectual Property Law. I am currently licensed in Arizona and Pennsylvania, after having moved to Phoenix in September 2019. I am currently General Counsel for a bioengineering company. I handle everything from their Mergers & Acquisitions, Private Placement Memorandums, and Articles of Amendment to Intellectual Property Assignments, to Employment Law and Beach of Contract settlements. I have 4 years experience handling commercial breach of contract cases working with Burton Neil & Associates, P.C. I have experience with Intellectual Property infringement after having worked for Ryley Carlock & Applewhite. I have also recently gained experience with Estate Planning law, drafting numerous Estate Planning documents for people such as Wills, Powers of Attorney, Healthcare Directives, and Trusts. I am looking to further gain legal experience in these fields of law as well as expand my legal experience assisting business start ups, mergers and acquisitions and also trademark registration and licensing.
Atilla Z. Baksay is a Colorado-based attorney practicing transactional and corporate law as well as securities regulation. Atilla represents clients in the negotiation and drafting of transactional (e.g. master service, purchase and sale, license, IP, and SaaS agreements) and corporate (e.g. restricted stock transfers, stock options plans, convertible notes/SAFE/SAFT agreements, bylaws/operating agreements, loan agreements, personal guarantees, and security agreements) contracts, in-house documents (e.g. employment policies, separation agreements, employment/independent contractor/consultant agreements, NDAs, brokerage relationship policies, and office policy memoranda), and digital policies (e.g. terms of service, privacy policies, CCPA notices, and GDPR notices). Atilla also reviews, and issues legal opinions concerning, the security status of digital currencies and assets. Following law school, Atilla practiced international trade law at the Executive Office of the President, Office of the United States Trade Representative, where his practice spanned economic sanctions enacted against goods originating in the People’s Republic of China valued at $500 billion. Afterwards, Atilla joined a Colorado law firm practicing civil litigation, where the majority of his practice comprised of construction defect suits. Today, Atilla's practice spans all corporate matters for clients in Colorado and the District of Columbia.
After graduating from The University of Chicago Law School in 2002, Clara spent eight years in private practice representing clients in complex commercial real estate, merger and acquisition, branding, and other transactional matters. Clara then worked as in-house counsel to a large financial services company, handling intellectual property, vendor contracts, technology, privacy, cybersecurity, licensing, marketing, and otherwise supporting general operations. She opened her own practice in September of 2017 and represents hedge funds, financial services companies, and technology companies in a range of transactional matters.
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