Do you have sensitive information about your business, that you need to share with a partner, employee or investor, but you want to ensure that the information remains a secret? Well, you’re in the right place! This short post will tell you everything you need to know about confidentiality agreements, namely, what they are, what they protect, and why you may need one.
What is a Confidentiality Agreement?
A confidentiality agreement (more commonly known in the UK as a non-disclosure agreement or NDA) is an agreement between two parties whereby party A shares sensitive or secret business information with party B, and party B agrees not to disclose the information to any other persons.
The aim of the agreement is to be able to disclose secret information for a specific purpose, safe in the knowledge that there are strong legal sanctions should your business associate pass the information on to any other persons. It’s the type of agreement which has protected the Coca-Cola recipe and the ‘secret blend of eleven herbs and spices’ (KFC) recipe for many decades. But it’s not just the major corporations that use confidentiality agreements – They can be used by anyone provided that the qualifying criteria are met.
What are the qualifying criteria for a Confidentiality Agreement?
The information can be vague. This is quite a broad criteria so if in doubt, check with an expert. However, it is really a question of common sense. For example, a secret recipe is specific in nature, and therefore not vague. But a general business idea to open a fast food restaurant is fairly vague and accordingly is likely to be difficult to protect.
The information can’t already be in the public domain.
Again, this criteria is subject to interpretation but generally if only a few people know the information, it is likely to qualify for protection. However, if the information is publicly available (i.e. via a Google search) then it’s likely to be classed as already in the public domain and therefore not capable of being protected by a confidentiality agreement.
It may be a bit of a ‘no-brainer’ but worthy of mention is the fact that confidentiality agreements MUST be in place prior to disclosing the protected information. Only in very limited circumstances will the courts afford protection where the information was disclosed without an agreement in place at the time of the disclosure.
What kinds of information does an NDA protect?
An NDA can protect (subject to the above requirements) all kinds of information: Secret ingredients, secret manufacturing processes, specific business ideas and so on. The general rule is that if the information is important to your business and not readily available in the public domain, then it can be protected from unauthorised disclosure.
What protection does a Confidentiality Agreement provide?
Broadly speaking a confidentiality agreement provides three forms of protection.
Firstly, it creates a deterrent for those who would consider sharing the information when not authorised to do so. Most businessmen or businesswomen would be reluctant to breach a legal agreement they’ve signed.
Secondly, it can provide a basis for courts to award an interim injunction. This is particularly important as a means of ‘damage control’, for example, where you become aware that the information has been passed on and is likely to be disclosed to further persons or revealed on the internet. Having a well drafted confidentiality agreement allows the courts to quickly and effectively stop any further disclosure.
Finally, and in the worst-case scenario where the information is disclosed without your consent, the agreement can be used in a civil action to sue for damages against the other party. Without some form of written evidence (in this case, an NDA) it becomes very difficult to make a successful claim through the courts – As it becomes your word against theirs. However, if they’ve signed an agreement and subsequently breach that agreement, it becomes far easier for you to recover damages that you may be owed.
In what scenarios might I need one?
Any information that is important to your business, particularly information that could cause you difficulties if a competitor were to obtain it, should be protected. When disclosing sensitive business information, it’s of paramount importance to consider the damage that could be caused if the information were to fall into the wrong hands. Of course, trust is key in any business relationship – But that doesn’t mean you should have to freely and unconditionally disclose your closely guarded secrets. Having a well drafted confidentiality agreement in place means that you’re protected should the information be disclosed without your authorisation… A small price to pay for peace of mind.
The contents of this article are intended solely for information purposes only and should not be construed as legal advice or opinion in any specific facts or circumstances.
Ryan has helped a vast number of businesses protect and control their intellectual property as well as drafting and advising on consumer and commercial contracts.
