What You Should Know About Confidentiality Agreements
Almost every company has important sensitive information, and for many of them, it is their most significant asset. In the regular course of business and a wide variety of commercial transactions and interactions, companies share, receive, and exchange sensitive information with and from customers, suppliers, and other parties.
Confidentiality clauses in contracts are required in these situations to protect the parties that provide information. These responsibilities can be documented in one of two ways, depending on the situation:
- A stand-alone confidentiality agreement and is also known as a nondisclosure agreement or NDA.
- Clauses in a contract that deals with a broader transaction
When is a confidentiality agreement needed?
A wide range of economic transactions and interactions entail either one party disclosing secret information to the other or the exchange of data back and forth. A confidentiality agreement between the parties should be in place in both circumstances. Confidentiality agreements may be utilized, for example, when considering or employing a business or marketing consultant or agency, where the hiring company must divulge confidential information for the consultant to complete the task. They request bids from suppliers, software developers, or other service providers, which entails the exchange of pricing, strategies, personnel data, business procedures, technical requirements, and sensitive information from both sides. Make use of the confidentiality agreement template that is available online.
Like an e-commerce business, your company may require a confidentiality agreement when getting into a co-marketing relationship with the operator of a complementing website or another sort of strategic alliance.
Types of Confidentiality Agreement
Confidential agreements might be unilateral or bilateral.
Information is disclosed solely by one party in unilateral agreements, which are one-sided, and the receiving party keeps the information confidential. It gets created in situations where a corporation, for example, submits a marketing idea to an advertising agency or a new product for review.
In bilateral agreements, both parties disclose confidential information and are bound to keep it secret. Mutual confidentiality agreements preserve sensitive proprietary information or a trade secret that could affect a company’s valuation.
Any information can get safeguarded under confidentiality agreements that are largely unknown to the general public, and the amount of data that can get protected is nearly limitless. Data, technical know-how, drawings of plans, software, tools, procedures, systems, and the list goes on. By signing confidentiality agreements, the receiving party gets legally banned from disclosing and is required to protect and keep the secrecy of any act that violates the agreement’s objective and results in a breach for disclosing party can seek remedies.
Exceptions to the confidential agreements
Some material cannot be considered secret and get not categorized as such in confidentiality agreements; yet, releasing such information does not constitute a breach of confidentiality. Such information is already in the public domain and is already known to the general public.
Confidentiality Agreements and Patents
When an individual or a firm has developed an idea for which a patent application has not yet get filed, the inventor’s ability to create a secret agreement becomes critical. Even after an application gets submitted, a confidentiality agreement can be helpful since it maintains the secret of the information until the application is approved and the patent rights get awarded. These features could also be characterized as trajectories when such inventions are made public for a marketing plan or other elements that may not get included in the patent application.
What to include in NDA
An NDA consists of several terms, and it is up to the parties to add clauses based on their understanding of the situation and how well they intend to protect their sensitive information. Use an online confidentiality agreement template. When preparing an NDA, keep in mind that the agreement should be explicit in language, crisp and short, and properly labeled to catch the readers’ attention. An NDA should get written in easy-to-understand language. The following are some of the clauses that make up an NDA:
The agreement’s parties
It is critical to determine who the parties to the agreement are, whether it is a unilateral or bilateral agreement, as the remainder of the clauses will get constructed accordingly.
Dates of entry and execution
This provision must get written very clearly to avoid any misunderstandings, as the date of agreeing and the date of execution of the agreement may differ depending on the parties’ common understanding.
Purpose of entering into NDA
The reason for entering into an NDA should be stated in the agreement so that the parties’ intentions are clear to anybody reading it. Exceptions for the disclosure of confidential information. The receiving party cannot be held accountable for the sensitive information’s dissemination. This clause absolves the receiving party of all responsibility or obligation in the event of a violation.
The term of the NDA is crucial, and it depends upon the parties’ willingness to share secret information. The parties (in the case of a bilateral NDA) or the disclosing party decide on this clause mutually. The time should generally be between 2 and 5 years, although it can be prolonged up to 10 years if the parties agree. The term cannot be indefinite because it is a hardship for the receiving party unless and until the transmitted sensitive information incorporates the disclosing party’s trade secrets.
Parties’ responsibilities and obligations
This clause outlines all of the parties’ responsibilities and obligations, either mutually agreed upon or imposed by the disclosing party’s will.
This clause contains sub-clauses such as –
- Without previous written approval, the parties must not divulge any confidential information to any unauthorized persons.
- The parties are required to exercise reasonable diligence and take all necessary safeguards to protect sensitive information.
- Even if secret information gets accidentally released despite due caution, the parties must work together to protect the information.
- The parties must not exploit the confidential information for their benefit/profit.
Confidentiality agreements protect confidential information, trade secrets, and the distinctive characteristics that make your firm operate when they use effectively. A well-written NDA will cast a wide net for the Disclosing Party and close any potential loopholes while maintaining a high level of fairness and value for the Recipient Party.