The 10 Confidentiality Commandments

Commandment #7. Understand How A Confidentiality Agreement Helps

Confidentiality Agreements give a contractual legal remedy for disclosure or misuse of information. Depending on the information discussed, you may also have other legal remedies available, such as under the trade secret or copyright law.

Trade secrets are ideas or information that the creator used financial resources to create, and made efforts to keep secret. Trade secrets are protected by both state and federal laws. If you have disclosed written information or source code, copyright can often help if the other party’s disclosure or misuse involved making a copy of the information. These remedies may be in addition to the contractual remedy in a Confidentiality Agreement.

Commandment #8. Use an Agreement Before Disclosing

If you are going to disclose information and use a confidentiality agreement to protect it, be sure the agreement has the following:

• As broad a definition of confidential information as possible, without any restrictions or exceptions.
• A clause stating to whom, when and how, disclosure and/or use is permitted.
• A clause stating that the information must always be kept confidential.
• Clauses regarding destruction of the information, return of the information, legal remedies for disclosure, and others.

Commandment #9. Read the Confidentiality Agreement Before Signing or Receiving

If you are asked by another party to sign a Confidentiality Agreement to cover the information he or she is about to disclose, read the agreement before you sign it. Be sure that it contains the following clauses, which protect your business by restricting it as little as possible in the future:

• A narrow definition of “confidential information” so that as little information as possible is covered by the agreement.
• A clear definition of confidential information in the agreement, or as items labeled “confidential” in writing, so that what information is covered by the agreement, and what is disclosed, may be more easily proven.
• Exceptions to the definition of “confidential information”, which include necessary disclosure to the government if required (SEC filings, investigations, etc.); information developed by your employees without reference to the disclosed information; information already publicly known (it’s posted on the Internet, has already been issued in a press release, etc.); and others.
• A “residual knowledge” clause, which states that anything your employees remember in their heads, they can use. This is based on the presumption that it is impossible for people to keep entirely straight in their minds what information came from where.

Commandment #10. Remember Business Reality

If you find yourself negotiating heavily over the language of the confidentiality agreement, try to step back and consider how great the risk really is.

Would the costs of litigation be greater than the value of the idea, so that even if the other side breached the agreement, you wouldn’t sue them? Will the information be of any value in six months? Are lots of other parties working on the same ideas so that six months from now, there will be many ways to accomplish the task that’s addressed by the information? Will the information be available from your company, the government or from other sources six months from now?

Good luck!