A confidentiality agreement (also known as a non-disclosure agreement, or NDA) is a must-have in the early stages of any discussions you may have which require that you share your business knowledge with another party.
Time and time again we come across companies who have entered into talks with another business and shared information without having signed a confidentiality agreement, only for negotiations to break down. By this stage, the enquiring business has often used sensitive information to its own advantage and the lack of a confidentiality agreement has had a catastrophic effect on the company divulging information, leaving it with no protection or remedy in law.
What protection does a confidentiality agreement offer?
A confidentiality agreement is a legal agreement between you and another party in which you agree to divulge information (trade secrets) to them and they agree not to disclose that information to anyone else. Generally, information qualifies as a trade secret, or as confidential, when it is either not known in the public domain or its value depends on it remaining secret or confidential.
Having an agreement in place allows you to approach and disclose sensitive information to potential partners, suppliers, customers and consultants knowing that they are legally required not to pass on that information. Most documents of this type follow a standard format but must be tailored to fit your requirements if they are to be of any real benefit.
When should you use a confidentiality agreement?
You can use confidentiality agreements to protect you under many circumstances including:
- Intellectual property, trade secrets, eg a mathematical or chemical formula, programme or process, technical drawings and designs, algorithms
- Business plans
- Customer and prospect lists
- Commercial or trading information
- Formalise a relationship, eg between an employer and employee
- Employees are under a duty not to divulge trade secrets however, former and current employees are responsible for many breaches in confidentiality. Therefore it is safest to have a document which states exactly what is confidential and provides for when an employee leaves.
A confidentiality agreement will also enable you to undertake all sorts of exciting business activities with confidence including:
- Collaborating with others in the development of a product or service
- Working with other companies to sell and buy from each other
- Exploring joint ventures to pool resources and skills to develop a product or service which neither partner would be able to do alone
- Employing new staff and saying goodbye to old ones whilst ensuring there is a way to prevent them from divulging confidential information
- Putting an embargo on journalists in order that you can give information to the press and control when they are made public
A well structured and written agreement will make for a smooth business relationship and deter anyone from breaching. Any party in breach of the agreement can be taken to court and sued for damages. And if you suspect that the other party may be about to breach your confidentiality agreement, you can get an injunction to prevent this from happening.
Is it okay to use an off-the-peg confidentiality agreement?
Well, you could do. However, the biggest problem in drawing up a confidentiality agreement is determining exactly what is and what isn’t covered. Naturally you will want to cover the broadest spectrum of information whilst the party in receipt of the information will want to make the terms as narrow as possible. Should you have to go to court, then it is important that the definitions and exceptions in your document are appropriate for the type of trade secrets you are sharing. If your confidentiality agreement is flawed you may not be protected should it be tested in a court of law.
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