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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:
- 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 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 the heck 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 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.
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 so that you know what you can and can't do.
 | Oral information in particular can be tricky to deal with. Many recipients of information may insist that only information conveyed in writing need be kept confidential. And, of course, the party giving oral information may 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's disclosed so that the receiving party is now on notice as to what oral statements are deemed confidential. |
Scope of the confidentiality obligation
The core of the Confidentiality Agreement is a two-part obligation on the receiver of the information: to keep the confidential information in fact confidential and not use the confidential information itself.
So the first part is that the receiver of the confidential information has to keep it secret. And this usually means that the receiver has to take reasonable steps not to let others have access to it. Reasonable steps could include that only a few people within the receiver's company have access to the information and they are all informed of the nature of the confidentiality restrictions.
The second part is also crucial — that recipients can't use the information themselves. After all, the last thing you want is for them to take your great idea or mailing list and make a bizillion dollars from it.
If the scope of the Confidentiality Agreement is broad enough, then you can sue for damages or to stop the recipients if they breach either their confidentiality obligations or their non-use agreement.
Exclusions from confidentiality treatment
Every Confidentiality Agreement has 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.
The common exclusions include information that is
- Already known to the recipient.
- Already publicly known (as long as the recipient didn't wrongfully release it to the public).
- Independently developed by the recipient without reference to or use of the confidential information of the disclosing party.
- 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 that if forced by court order without breaching the Confidentiality Agreement as 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 argue that the Confidentiality 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 probably want to insist on a definite term where the agreement ends. After all, most information after a certain number of years becomes useless anyway, and the cost of policing confidentiality obligations can become expensive if it's a "forever" obligation.
So if you agree to a term, what is reasonable? Well, it really depends on the industry you're in and the type of information conveyed. In some businesses, a few years may be acceptable because the technology may change so fast as to render the information pretty much worthless.
 | Typically, agreements (if they have a term) have a time limit of three to ten years. But your Confidentiality Agreement also needs to say 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. |
More stuff that may make sense for your Confidentiality Agreement
You may want to add some other bells and whistles to your Confidentiality Agreement to protect your company from further infringement issues, depending on your situation. Here are some ideas:
- Employee solicitation. If the recipient has significant access to your employees, you may want to insert a clause that prevents the recipient from soliciting or hiring your employees for 12 months. The other side may sometimes agree to that, with some carve-outs. For example, the recipients may want the limitation to apply only to those employees that they have come into contact with during their review of information or interviews.
- Jurisdiction in case of 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, then the dispute will be handled exclusively in your city. You don't want to have to travel far away and incur additional costs to enforce your Confidentiality Agreement.
- Injunction. 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 clause simply says that you can get a court order stopping the other party from doing the breaching act (as opposed to just getting money damages after it's too late).
- No rights in the receiving party. It's sometimes helpful to have a clause that says that because you are going to share confidential information with them, the other side doesn't get diddlysquat rights to your ideas or even a right to enter into a deal with you (the so-called "diddlysquat" clause).
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