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Confidentiality Agreements Considerations Cheat Sheet (DRAFT) by [deleted]

What to know about Confidentiality Agreements

This is a draft cheat sheet. It is a work in progress and is not finished yet.


The growth in the use of Confid­ent­iality Agreements in more tradit­ional companies is in large part attrib­utable to a growing awareness of the importance of intell­ectual property to many different types of busine­sses. Intell­ectual property in materials manufa­cturing and machining usually takes the form of internal know-how (sometimes referred to as “tribal knowle­dge”) and other trade secrets (rather than registered patents), so it is important that contra­ctual protection for confid­ential and propri­etary inform­ation be in place to protect this inform­ation. Also, customers and suppliers change more frequently than in the past, so propri­etary inform­ation is being shared more often with unfamiliar people.

Today’s workforce is mobile.All of this movement leads to a greater concern about the protection of confid­ential and propri­etary inform­ation that is shared with suppliers, customers, consul­tants, employees, potential joint venture partners or people who are interested in investing in a business.

What is Protected?

Don’t ignore the definition of “Confi­dential Inform­ation” in any form of Confid­ent­iality Agreement on the assumption that it is all “boile­rpl­ate.” On the contrary, while the definition of Confid­ential Inform­ation is similar from contract to contract, before signing an agreement, review it to ensure that the inform­ation to be protected is described with reasonable specif­icity.

Anyone seeking to enforce a Confid­ent­iality Agreement will be more successful if the inform­ation that is wrongly used or disclosed is well identified inside the Confid­ent­iality Agreement. And, on the other hand, anyone who is the recipient of inform­ation has a legitimate interest in making sure that he or she knows what it is that is to be protected.

Protect Inform­ation Received

Even if a perfect Confid­ent­iality Agreement is signed by a third party, if that third party is disrep­utable and untrus­two­rthy, there is going to be trouble. Do not give a disrep­utable or untrus­tworthy party confid­ential inform­ation, whether you have an agreement in place or not. Litigation is costly and time consuming, and worse – by the time a breach of a Confid­ent­iality Agreement is discov­ered, the “horse” could already be “out of the barn” and secret inform­ation has been shared in a manner that is damaging to the business. Also, if a Confid­ent­iality Agreement is signed to benefit a third party, care should be taken to protect propri­etary inform­ation that is received from being used for commercial purposes or being disclosed to others. Don’t just sign and forget.

Confid­ent­iality Agreement

SPECIAL Causition About Duration

Recipients of confid­ential inform­ation frequently ask that the term of a Confid­ent­iality Agreement be limited in duration. Sometimes this will be written as a certain number of years (e.g., 3 years) and sometimes it will be a formula (e.g., the “later of three years after the last date of disclosure of Confid­ential Inform­ation to Receiving Party or three years after the date of this Agreem­ent”). It is reasonable to request limited duration and to grant it. However, anyone who is sharing inform­ation must be very careful to exclude the protection of trade secrets from any time period limita­tion. Trade secrets are defined generally as inform­ation that derives indepe­ndent economic value from not being generally known to others who could derive economic value from knowing it, and that is the subject of reasonable efforts to maintain its secrecy. Trade secrets have unlimited duration under most state law, so long as the owner continues to meet the criteria for trade secrets under applicable law.

Word About Foring Law & Liquided Damages

Be thoughtful about signing a Confid­ent­iality Agreement governed by foreign law. Because applic­ation of any non-U.S. law can contain traps for the unwary, it is best practices to consult a lawyer in the country in question before accepting a Confid­ent­iality Agreement governed by that country’s law. In addition, sometimes a party will seek to include a “liqui­dated damages” provision in a Confid­ent­iality Agreement. Liquidated damages are a specified amount that the parties agree will be paid upon a specific breach, without having to prove actual damages. It is important to understand the ramifi­cations of agreeing to pay liquidated damages under these circum­sta­nces. Be careful of agreeing to pay a large lump sum in the event of a breach that in reality caused only minor or no harm.

Beware DIsgused Non-Co­mpete

It is not uncommon to see language in a Confid­ent­iality Agreement that is, in reality, non-co­mpe­tition language.
Example, a customer’s Confid­ent­iality Agreement might contain a provision prohib­iting a supplier from manufa­cturing parts of the same type that are being manufa­ctured for the customer for other customers of the supplier, or a consultant from serving clients in the same industry.