Confidentiality Agreement: What Can I Use a Confidentiality Agreement For?

A confidentiality agreement can be used to protect sensitive information which is being disclosed to other people. They are also known as Non Disclosure Agreements.

A confidentiality agreement can cover and protect a wide range of information: verbal, written, pictures, ideas, designs and is not limited to discussions. Confidentiality may need to be considered in employment situations to protect trade secrets or other sensitive information that an organisation would not want disseminated to the public or when a third party is dealing with client information. Another common use for such agreements is when a person or a company has a new idea they want to discuss with others in order to employ contractors to develop the idea, but want it to remain confidential. This also may occur during discussions with prospective investors, joint venture partners or financiers.

You would, in the above examples, need to ensure your idea and information was not used, copied or let out into the public domain either in whole or in part, in any form or manner. Not only are new ideas communicated in this type of situation, but so are trade secrets and designs, making a confidentiality agreement in these types of dealings and discussions essential.

A confidentiality agreement does not necessarily compensate you if your idea or design is leaked into the public domain but if a person or company signs such an agreement, you at least have recourse if any information is then divulged and by signing the agreement, it re-enforces the importance of the information that is being received and may dissuade any potential breach. If information is used or made public, for example, the person responsible will be liable for the consequences and all losses that may flow from any breach but in many cases, the compensation may not equivalent to the loss of the idea or information. You need to ensure that your agreement is strong and makes clear the "potential" losses that may be suffered so that you may be compensated adequately.

The nature of the information and any work being done will determine the appropriate terms for each confidentiality agreement; in many cases the information will be kept confidential indefinitely and confidentiality agreements involving employment last beyond the term of the employment.

Irrespective of your circumstances and how important your information may be, it is likely at some stage in your everyday life that you will need some form of confidentiality agreement or arrangement. This is a simple and cost effective method of managing and protecting yourself and your information.

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Confidentiality Agreement Template

Think of the last time you thought about entering into business with someone. Whether you were engaging a consultant, hiring an employee, sharing your trade secrets with a vendor or providing your private data to a customer, you've probably asked the other side to sign a confidentiality agreement protecting your most prized information (or they've asked you to do so).

But this kind of contract shouldn't be some simple hoop to jump through, farmed out to your lawyers or contract managers without you paying close attention to the details. These are binding obligations that you can be sued for if you don't follow them, so it's important to take them seriously. And if you work at a small business, you likely don't even have the time or money for an attorney to handle the constant flow of nondisclosure agreements that often comes your way.

So it's not a bad idea to try and get a sense of what the key provisions are in a comprehensive confidentiality agreement template. After all, most of these provisions are more business oriented than legalistic, so shouldn't you make the business call on what positions you want to take in your confidentiality contracts?

Here are the key provisions and negotiating positions that you want to think about:

1. Business Purpose. Generally, you state at the top of a confidentiality agreement why you are sharing your confidential information. This is the business purpose. It could be because you and the other party are considering a business relationship, or to evaluate a potential product or service. Whatever it is, you want to clearly state this business purpose up front so it's clear what the agreement is focusing on and why the parties are signing it.

2. Marking Requirement. This is definitely something to watch out for because it can get you into trouble quite easily. The marking requirement forces the party disclosing its confidential information to actually mark or stamp that information as confidential or describe it as such in a letter given to the receiving party. Unless you are in the habit of keeping close track of your confidential materials and stamping them with big bold letters, you're probably going to fail to comply with a marking requirement and unknowingly give away your confidential information without any restriction on the receiving party from sharing it with the public or third parties. How do people try and alleviate this concern?

3. Description of Confidential Information. Well, one way people try and get around the marking requirement is to provide a description of which information is confidential, and which information is not. But people usually write such a wide ranging description that it's hard to know what is or is not confidential. And if two parties sign multiple confidentiality agreements with each other, then you usually end up with multiple overlapping definitions of confidentiality, so you have no idea which agreement applies to which information, nor whether certain materials fall under the agreement and other ones do not.

4. Exceptions. What's the solution? The best move is to just say that all of the private information that you provide for the business purpose is confidential. Then insert some wide ranging exceptions to this definition of confidential information that make the agreement a fair one. Typically, you would tell the party that is going to receive your confidential data that they don't have to protect any of your materials if they happen to be already out there in the public domain, are previously in the receiving party's possession (which means they developed the same thing on their own), or were given to the receiving party by a third party. These kinds of exceptions are important because it's not fair to require the receiving party to lock up your materials if they really aren't confidential to you. At the same time, anything that doesn't fall within one of these exceptions really should be kept confidential because no one else is in possession of it. Ultimately, these exceptions provide a nice balance between the parties and make it easier to determine what is covered by the nondisclosure obligation and what is not.

So if you are thinking about all of the provisions that should typically go into a comprehensive confidentiality agreement template, make sure you nail the business purpose, marking requirement, description and exceptions issues. These are the provisions that are most heavily discussed and negotiated in this kind of contract, so business people should be knowledgeable about them and able to take a firm stand on each issue.

Jason Mark Anderman is President of WhichDraft.com, where a Q&A wizard allows users to create, collaborate, and customize a confidentiality agreement template simply and easily.

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