What You Need to Know About Confidentiality Agreements

There are many reasons why you may need a confidentiality agreement or non-disclosure agreement (NDA) and they include the following:

  • You have an idea for a new invention or a new website business and you need support from other people in developing the concept, but without the risk they will take the idea and use it themselves
  • You are taking on someone to help with your business and you want to ensure that they keep your trade secrets, customer lists etc., confidential
  • You are thinking of selling your company and you need to disclose trading details to the potential buyer before you know if he will go ahead with the purchase
  • You want to exchange information and ideas with another business with the aim of setting up a new joint venture or jointly developing a new product.
Confidentiality Agreements needn't be fierce to be effective

Confidentiality Agreements needn’t be fierce to be effective!

Because of the need to protect your ideas when embarking on a negotiation, the first agreement you will sign with your (potential) new business partner is likely to be a confidentiality agreement.

Well-established companies are used to this so, if you are an individual with a good idea but are nervous about suggesting this to a larger organisation, there is no need to be – they should understand the reasons and be willing to comply with your request.  Be wary of those who do not want to sign and simply tell you to trust them!

Although the style and content of each NDA will vary, depending on the circumstances, there are some common features in most of them.

The agreement will quite often be in the form of a letter addressed by one party to the other in which case the recipient should be asked to accept the terms set out by signing and returning a copy to the sender: only when the letter is accepted (without any open issues or qualifications) will the agreement be effective.

Alternatively the agreement may  be more formal, setting out the name and address of the parties and the terms agreed between them and signed by both parties.

The agreement will identify the information and data that is covered by the confidentiality obligations.  Quite often the wording will be generic rather than specific, and refer to the ideas, designs, know-how and products and related information that are to be disclosed by one party to the other.

There will be a time period in which the confidentiality obligations continue.  There are often two elements to this.  Firstly, the agreement will usually have a fixed period in which the parties will discuss the proposed project and, if they do not decide to go ahead after that period, the agreement will come to an end.  However, the end of the discussion period will not be the end of the confidentiality obligations and the agreement will normally provide for those obligations to continue for a specified time, say 5 years.

When the fixed period ends, the agreement should provide for all confidential information and data provided by each party to the other to be returned or destroyed.

During the agreement there may be restrictions on the use of information – e.g. that it can only be accessed by those in the recipient company who need to know about it because they are involved in the discussions.  This may be coupled with a requirement that all those individuals are themselves subject to confidentiality obligations.

The agreement will usually contain some exclusions:  information that is already publicly available or obtained by the recipient awfully from another source will not be covered by the agreement.

When the arrangements are such that one party introduces the other to third parties that might be involved in the project, it is sensible to have a clause that prohibits that other party from entering into any direct dealing with those third parties for a similar project before some time has passed after the negotiations have come to an end.

The agreement may contain a requirement that a party that breaches the agreement will indemnify the other against all loss and damage it suffers from the unauthorised disclosure. And there may be a statement that as damages may not be an adequate remedy, the innocent party will be entitled to obtain a court order prohibiting disclosure.

ContractStore has a number of relevant agreements:

  • If you run a company that is interested in developing an idea or product that someone has brought to you and that person needs to be protected by a confidentiality agreement, we have a letter form that should suffice: http://www.contractstore.com/A119-confidentiality

For the full list: http://www.contractstore.com/confidentiality-and-non-disclosure-agreements

This entry was posted in Business Contracts, Guidance Articles, Setting Up Business and tagged , , , by Giles. Bookmark the permalink.

About Giles

Giles is the founder and managing director of ContractStore. It was his idea to set up a company selling documents online and he has played a major part in the company's development. He is an English solicitor, with over thirty years' experience of drafting and negotiating commercial and construction contracts in the UK and overseas. Giles has long been convinced that there is a quicker and simpler approach to the delivery and supply of most contracts, and he is an active proponent of the use of plain English in legal documents. He specialises in the drafting of construction and engineering contracts and as well as contributing contracts to the ContractStore website, he is co-author of the JCT Constructing Excellence Contract and of 'Exporting Made Easy' with Simon Bedford.

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