Introduction to confidentiality agreements

Introduction to confidentiality agreements

Lionel Ser
This resource outlines confidentiality agreements and some of the common issues encountered that you should look out for.

Confidentiality is crucial whether you are starting discussions with a potential business partner or closing a deal. Even if the person you are talking to agrees to treat your valuable information as confidential, it may sometimes be wise to limit what you disclose.

It is always risky to reveal anything about a patentable invention prior to submitting a patent application for such invention. In some situations, your disclosure may make it more difficult for you to get a patent for your innovation. It is best to consult with us before making any disclosure.

If you disclose information to a global company or to a prospect in other countries, it may be difficult to determine whether they are subsequently misusing that information. In such cases, a confidentiality agreement may be of only limited value.

Ensure that any person or company that signs a confidentiality agreement has some substance. If you sign an agreement with a company that has no assets or business and there is a breach of confidentiality, the other party may not be worth suing.

Some organizations that get many unsolicited ideas may refuse to sign confidentiality agreements on principle. That does not necessarily imply that they are untrustworthy. In many circumstances, they simply do not want to be bound by confidentiality agreements in case the material disclosed to them also relates to something they are producing independently. If this occurs, you must make a business judgement about whether to take a risk and proceed with the disclosure. However, before disclosing your ideas or concepts, make sure you have considered whether to apply for any intellectual property (IP) protection that may be available for it.

What then should you disclose?

It makes sense not to reveal too much. Even if the other party has signed an agreement, how can you be certain that they will honour it, or that someone within the firm will not exploit the information? It can be difficult to prove that someone violated a confidentiality agreement. So take steps to ensure that you only show the other person what they need to see.

Are all confidentiality agreements the same?

Not all confidentiality agreements are the same.

A poorly worded agreement can be just as damaging as none at all. As a result, ensure that your agreement has been examined by an expert.

The following provisions should be included in the agreement.

  • A prohibition on the recipient party using or revealing the information for any purpose other than the one specified.
  • A provision requiring the recipient to only disclose the information to its employees and contractors on a need-to-know basis, and only to those who have agreed to keep it secret.

A clear specification of what information is to be treated as confidential. This could be all information pertaining to a specific project or it might be technology, or it could simply be everything the disclosing party discloses.

  • A list of confidentiality exceptions. It goes without saying that some information cannot be kept private. One example is information that is already widely available.
  • Provisions specifying how long the obligations of confidence will last. The duties may be indefinite or may terminate after a set length of time.
  • Terms governing the destruction or return of information upon termination of the agreement.

• A provision requiring the recipient party to notify the disclosing party if a breach or loss of confidence is discovered.

What are some pitfalls?

Confidentiality agreements frequently include provisions that limit the recipient party's obligations. You should be aware of these if you are providing sensitive information.

They could include the following items.

  • A narrow definition of confidential information.
  • An overly broad definition of confidential information that lacks carve-outs for public domain information – agreements with such definitions have been ruled invalid by Australian courts.
  • Terms that limit information disclosure but not use.
  • A requirement that all disclosed information be labelled as confidential.
  • A requirement that information supplied orally be followed up on in writing.
  • A brief period of confidentiality.

A governing law provision that means you have to litigate any disputes in another country.

  • In some cases, where you are the person receiving the information, it can be useful to include some of these provisions in any agreement.

• You should always get legal advice before signing another person’s confidentiality agreement.