Confidentiality or Non-Disclosure Agreement
Confidentiality or Non-Disclosure Agreement is a best tool to protect your business secrets. This article provides information on essentials of confidential agreement.
Confidentiality or Non-Disclosure Agreement
A legal agreement between two or more parties that is used to signify that a confidential relationship exists between the parties. A confidentiality agreement is used in strategic meetings where various parties become privy to sensitive corporate information, which should not be made available to the general public or to various competitors.
It is also known as a “”non-disclosure agreement (NDA)””.
Purpose of Confidentiality Agreement
Employers benefit from confidentiality agreements because they keep other parties from sharing proprietary knowledge that is confidential and proprietary to the company with competitors. This can cover:
â¢ trade secrets – eg a formula, programme or process
â¢ technical drawings and designs
â¢ mathematical and chemical formulae
â¢ business plans
â¢ customer and prospect lists
Advantages of Written Agreement
A written agreement has a number of advantages:
â¢ it offers clearly defined protection and precise wording, such as definitions of “public domain”, the confidentiality time period and contracting parties;
â¢ it is more practical;
â¢ it is useful for negligent and inadvertent, rather than purely intentional disclosure;
â¢ it can be enforced against the recipient’s employees;
â¢ it can impose ancillary obligations such as the return of documents.
Types of Confidentiality Agreement
Confidentiality agreements can be one-way or two-way agreements:
â¢ A one-way confidentiality agreement is where only one party discloses confidential information to the other (also known as Unilateral Confidentiality Agreement); and
â¢ A two-way confidentiality agreement is where all parties disclose confidential information to each other (also known as Mutual Confidentiality Agreement).
Functions of Confidentiality Agreements
It performs two functions:
Firstly they protect sensitive information from being disclosed to anyone else. One or more participants in the agreement promise not to disclose the information received from the other party. If the information is disclosed to another individual or company, the injured party has cause to claim a breach of contract and can take the other party to court to seek damages.
Secondly the use of a confidentiality agreement prevents the loss of valuable patent rights. In law the public disclosure of an invention can be deemed as a forfeiture of patent rights surrounding that idea or invention. A confidentiality agreement can prevent valuable patent rights being lost unintentionally.
Different situations of Confidentiality Agreement
Here are some typical situations where a Confidentiality Agreement is often used:
â¢ An invention or business idea will be presented to a potential partner, investor, or distributor
â¢ Financial, marketing, and other information will be shared with a prospective buyer of your business or co-venturer
â¢ A new product or technology will be shown to a prospective buyer or licensee
â¢ A company or individual will be providing you with services and will have access to some sensitive information in providing those services
â¢ Employees will have access to confidential and proprietary information of your business in the course of their job
A confidentiality agreement is also used in other circumstances including:
â¢ management and senior level job interviews during which company confidential information is discussed,
â¢ consultant or contractor contract and assignment discussions and products resulting from contractual work,
â¢ vendor discussions that involve products, parts, and other proprietary information sharing, and
â¢ Situations involving stock or company purchase, due diligence, or any interaction during which confidential information is shared.
What if the Party itself publishes the Information?
Publication by the any party effectively waives the right to confidentiality.
Tenure of Confidentiality Agreement
The agreement could last indefinitely, and this may be necessary for particularly sensitive or valuable information.
However, it is important not to burden the recipient unnecessarily as an unfair term may be struck out by the Courts.
The agreement should also include a deadline date by which all materials must be either destroyed or returned to the donor.
Legal Remedies when Confidential Agreement is broken
The main legal remedies are:
â¢ a temporary injunction pending a full hearing at trial;
â¢ a permanent injunction to prevent original or further disclosure, or production of a rival and competing product – compensation awarded by the Courts;
â¢ damages based on the “royalties” or sales for the product;
â¢ demanding the return of a document or any other embodiment of the information.
Key Non-Disclosure Agreement Terms
Certain terms are likely to crop up in non-disclosure agreements. It is a good idea to understand these terms and their definitions:
Confidentiality – a legal principle that maintains secrecy between parties.
Owner or discloser – the name of the person, organisation or business disclosing the information.
Recipient – the name of the person, organisation or business that is receiving the information and that is responsible for ensuring its confidentiality.
Statement of reasons – a short paragraph defining the context in which the information will be disclosed and why the parties want to make the information the subject of a contract.
Subject – the information and documents that will be the subject of the confidentiality agreement.
Penalty clause – this is an optional way of fixing an amount of compensation that the owner or discloser is paid if the recipient breaches the agreement.
Confidentiality clause – this is an optional clause that requires both parties to keep the existence of the confidentiality agreement a secret.
Term of agreement – how long the obligations of the contract last for.
Extra Strong Clauses
Examples of extra strong clauses could include:
â¢ The receiving party is forbidden to use the disclosed confidential information to make inventions or other valuable developments.
â¢ If the receiving party uses the disclosed confidential information to make inventions or other valuable development, then all rights to such shall be assigned to the disclosing party.
â¢ The receiving party will not attempt to replicate the disclosed confidential information.
â¢ The receiving party will not engage in detailed research for the purpose of investigating the details and aspects of the disclosed confidential information.
â¢ The receiving party will not use the disclosed confidential information in a manner that either confers commercial benefit on the receiving party or places the disclosing party at a commercial disadvantage.
Net Lawman’s Confidentiality Agreements
Our confidentiality agreement templates are all professionally created to be easy to use and customise to your individual requirements. The documents you will find here have been drawn up by solicitors and barristers with experience in the law of confidentiality and contract law. They are all up to date and are kept up to date in accordance with the most current changes in the laws of Australia.
The confidentiality agreement will be legally binding once it is signed so you will have peace of mind that your business plans and any trade secrets – your employees know – are protected.
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