A confidentiality agreement outlines the terms under which sensitive information will remain privileged and private. The parties to a confidentiality agreement may be a combination of individuals and businesses. One party may disclose confidential information to the other, or both parties to the confidentiality agreement may have exchanged information with each other.
What is confidential information?
The definition of confidential information in the context of a confidentiality agreement is fairly broad. It encompasses things like business ideas or concepts to more detailed plans to develop something. Other forms of intellectual property benefit from stronger statutory protections, such as copyright and trade marks under the Copyright Act 1965 and the Trade Marks Act 1995. Confidential information, however, is more difficult to protect under these laws, which is why a confidentiality agreement can be extremely useful and effective as a means of safeguarding the sensitive nature of the information.
What information can be protected in a confidentiality agreement?
Not all information can be protected under a confidentiality agreement. A confidentiality agreement will only be able to protect information that has the necessary quality of confidence. In other words, you can’t make someone keep information confidential that is already public knowledge. That is not to say that the confidentiality agreement will be invalid if the information is not original, novel or inventive. Rather, the confidential information must be confidential in character. There must be some basis for its secrecy, as opposed to being merely unknown by other parties. The validity of confidentiality agreements can come into question if the circumstances under which the confidential information is shared or disclosed are not actually confidential at all. The context in which the information is shared must be such that the parties would have understood the confidential nature of the information.
In some cases, parties to a confidentiality agreement will go to great lengths to protect the confidential information, even pursuing legal action against the party allegedly in breach of their contractual obligations. If you wish to take legal action against another party to a confidentiality agreement, contact a contract lawyer for legal advice on how to proceed.
When is a confidentiality agreement most useful?
A confidentiality agreement is most useful when you wish to maintain the secrecy of certain information that has been shared with certain others.
Confidentiality agreements are used in variety of situations, including:
- During negotiations for the sale of business. This usually occurs when the vendor lets the prospective buyer conduct due diligence on the business and investigate its financial accounts and other sensitive business data. The prospective buyer does this to decide whether or not to buy the business;
- During a partnership or joint venture. The parties considering entering into some sort of alliance, affiliation, partnership, venture, or sponsorship relationship will usually reveal certain details about each other’s business as a way of establishing the financial viability of joining forces. It might also be that the businesses have already become partners and wish to continue to share confidential information with one another with the security afforded by a confidentiality agreement;
- A concept or idea. Sometimes those with a new business idea will approach someone for technical assistance, financial backing, partnership opportunity or some other commercial relationship that requires certain information be disclosed. The party sharing the idea or concept may wish to have the other party sign a confidentiality agreement to ensure their idea is not stolen. In practice, however, investors will not usually sign confidentiality agreements; and
- In Employment Agreements. Sometimes the employer will wish to protect the confidential information with which its employees will come into contact, both during employment and after the employment has come to an end.
What is included in a confidentiality agreement?
Confidentiality agreements have a number of standard clauses and provisions. Typically they include:
- The parties;
- The actual information to remain confidential;
- The purpose of disclosing the confidential information, i.e. what use(s) it is intended for;
- An obligation on the recipient of the information to maintain its secrecy;
- A period of time during which the information is to remain confidential;
- A clause that prevents the recipient from using the confidential information for private benefit or in a damaging manner towards the disclosing party; and
- Signatures from both parties.
How are confidentiality agreements structured?
Confidentiality agreement might exist in a letter, especially in less formal circumstances. Whether it is in the form a deed or a letter, both parties and their respective authorised representatives should sign the confidentiality agreement. Have a lawyer review the terms to ensure it is all encompassing, reasonable and legally effective.
For legal assistance with drafting a confidentiality agreement, contact LegalVision on 1300 544 755 and speak with one of our contract lawyers today. We have extensive experience in the drafting and reviewing of confidentiality agreements.