Introduction- Confidentiality Agreement
A Confidentiality Agreement is also called a Non-Disclosure Agreement (NDA), which is signed between two parties. The Agreement defines information of a confidential nature. This is the information that the party wants to share with each other, given the nature of their transactions, but they want to restrict the access from a third party. Most importantly there are two things a Confidentiality agreement does. They are:
- Firstly, it describes the nature of the information that is deemed ‘confidential’,
- Secondly, both the parties are precluded from disclosing the confidential information to any third party.
It is noteworthy that mostly confidentiality agreements are executed between businesses, but two individuals can also enter into a confidentiality agreement, for the purpose of conducting effective transactions. Generally, a party insists on entering into a Confidentiality Agreement while disclosing information relating to business practices, business procedures or HR policies.
Since a unique idea or model is important for a business to succeed, it gets important to protect any kind of confidential information. Primarily to safeguard business secrets and secondarily to protect another party and business employees from disclosing any confidential information. The advantages can be described as follows:
- It puts emphasis on the significance of non-disclosure of trade secrets,
- The likelihood of trade secrets being divulged by various groups is minimized,
- The Confidentiality Agreement acts as a deterrent to parties who might consider deliberate disclosure,
- It is noteworthy, that in case a violation occur a Confidentiality Agreement will be of advantage in Court of Law,
- Acts as a safeguard for the party in Court of Law,
- Most importantly in case an invention, if the patent application is not filed, Confidentiality agreements are the best option.
- Furthermore, it is quite possible that when disclosing an invention you will also disclose marketing and other business information not disclosed in the patent application, which itself could be maintained as a trade secret.
Types of Confidentiality Agreement
A Confidentiality Agreement is classified into the following types:
A unilateral Confidential Agreement involves two parties where only the disclosing party anticipates disclosing certain information to the receiving party. It is important to note that it requires the information to be protected from further disclosure for some reason. An ideal example would be maintaining the secrecy necessary to satisfy patent laws or legal protection for trade secrets, limiting disclosure of information prior to issuing a press release for a major announcement.
A Bilateral Confidential Agreement includes two parties. Both the parties anticipate disclosing information to one another that each intends to protect from further disclosure. This type of Confidential Agreement is common when businesses are considering some kind of joint venture or merger.
A Multilateral Confidential Agreement includes three or more parties. One of the parties anticipates disclosing information to the other parties and requires that the information is protected from further disclosure. This type of Confidential Agreement eliminates the need for separate unilateral or bilateral Confidential Agreement between only two parties.
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Examples of situations where Confidentiality Agreements can be used are:
- Presentation of an invention or business idea to a potential investor, distributor or partner,
- Allowing employees access to confidential and proprietary information of your business during the course of their job,
- Sharing financial, marketing, and other information with a prospective buyer of your business,
- Receiving services from a company or individual having access to sensitive information.
The common exclusions include information that is:
- Already known to the recipient
- Independently developed by the recipient without reference to or use of the confidential information of the disclosing party
- Already publicly known (as long as the recipient didn’t wrongfully release it to the public)
- Disclosed to the recipient by some other party who has no duty of the confidentiality to the disclosing party