Confidentiality Agreements: Don’t get caught out!

Often confidentiality agreements or non-disclosure agreements (NDAs) are seen as a standard part of doing business and are often signed by businesses without much, if any, legal review. Are you sure you know what you are signing up to?

What is a confidentiality agreement?

A confidentiality agreement or a non-disclosure agreement (NDA) is a legal contract between two or more parties whereby controls are put around the use and disclosure of the confidential information belonging to the other party/parties.

Typically the parties will agree to share sensitive information for a specific purpose whilst agreeing not to share such information with third parties. This allows companies to share their sensitive business information with other businesses while preventing them from passing this information on.

NDA’s are particularly useful to businesses and individuals working in intellectual property rich fields such as software development, technology businesses, product companies and service providers, where discussing ideas with potential business partners and negotiating business deals is a part of everyday life but also presents considerable risk if such discussions are not suitably protected. Businesses will hope that such conversations will be kept confidential by their business partners but this is not always the case. From a legal perspective, it is always better to take steps to reduce the risk and implement rights in the event of breach than to be left with no legal recourse in the event that someone decides to exploit the confidential information of another party without their permission and for their own benefit in circumstances which would have constituted a potential breach of an NDA had one been put in place.

The parties to an NDA are generally obliged to keep the information secret and confidential for a specified period, and not to use or exploit that information in any way except to the minimum extent necessary to fulfil an agreed purpose. In circumstances where the information needs to be discussed with other parties outside of the agreement, such as subsidiaries, subcontractors or employees, a typical NDA will be drafted to allow for this disclosure provided that these individuals are placed under the same duty of confidence to ensure the information remains confidential or that these are potential remedies available for a breach.

How to structure a Non-disclosure agreement or NDA

NDA’s are typically structured in two basic formats: a mutual non-disclosure agreement or a one way non-disclosure agreement. A one way confidentiality agreement is suitable when only one party is disclosing information to the other party. A mutual NDA is used when both parties will be disclosing confidential information to each other for the specified purpose outlined in the agreement.

What are your options if a confidentiality agreement is breached?

Although a confidentiality agreement is a great tool to protect the confidential information of your business, it does not provide an absolute guarantee that the disclosed information will remain protected by the other party. It is therefore vitally important that you are aware of the remedies potentially available if the NDA is breached by the other party (although the available rights and remedies will be dependent on the terms of the NDA and general legal principles), these may include:

• An injunction to prevent further releases of information.
• Damages to compensate the injured party for their losses.
• A fee to cover the amount you would otherwise have paid for the licence to use the information.
• An accounting for any profits made from exploiting the information received.

In order to protect your confidential information, we would always recommend that in addition to entering into the agreement, putting practical measures in place to protect the information since it is preferable to prevent a misuse of confidential information in the first place rather than having to rely on the terms of the NDA. For example, only disclosing what is absolutely necessary and providing staged disclosure to avoid disclosing everything up front.

Not necessarily just confidentiality!

As mentioned above, NDA’s are primarily designed to ensure (i) the preservation of confidential information and (ii) that the confidential information is used for a defined purpose.

However, they may also contain other non-confidentiality related rights and obligations. For example:

Non-compete clauses. It is potentially possible for the parties to include provisions prohibiting other parties from competing with certain aspects of their business by including non-compete clauses. However, including clauses of this nature can raise competition law and restraint of trade considerations and may for example, be regarded as void or unenforceable in certain circumstances. We recommend seeking legal advice prior to incorporating such a clause within your NDA or signing up to such a clause.

Non-solicitation clauses. Clause of this nature are intended to prevent the parties from “poaching” the employees and staff and potentially customers and suppliers of the other party/parties, usually for a set period of time. Open market recruitment campaigns and associated job offers are often excluded from such restrictions.

GDPR. The disclosing party may be providing personal data to the recipient and the parties could be data controllers or data processors for the purposes of data protection legislation. If personal data will be disclosed to another party, consideration should be given as to the lawful basis for making such disclosures and appropriate data protection/GDPR clauses should be included in the NDA. It may be more appropriate to redact information so that it no longer constitutes personal data, particularly in the early stages of discussions.

How can we help?

NDA’s serve an important purpose in both large and small business and when used properly, will help protect confidential information, keep trade secrets, and preserve the unique aspects that make your business work and differentiate it from your competitors – ultimately enhancing the value of your business. For strategic advice and on how to best protect your business and its reputation, please contact our commercial team.

Mark Chapman
Partner, Commercial
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This reflects the law and market position at the date of publication and is written as a general guide. It does not contain definitive legal advice, which should be sought in relation to a specific matter.

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