Confidentiality Agreements and Nondisclosure Agreements: What Do They Mean?

Non-Disclosure-AgreementEveryone wants to keep private information private. Businesses want to keep their confidential information confidential. Yet the nature of our commercial world means that people and businesses must disclose this kind of information from time to time. To protect sensitive information, people can sign documents called “confidentiality agreements” or “non-disclosure agreements” (so-called “NDAs”).  These agreements, which are sometimes included within employment agreements or other documents, have certain standard provisions.

  1. Defining Confidential Information.  What is it you are trying to keep confidential?  Is it material related to a particular project, or anything you consider to be a trade secret?
  2. Information That is Not Really Confidential.  Information is not really confidential if it is already in the public domain, or if the receiving party already knew it from a non-confidential source.  The NDA should carve it out of the definition.
  3. If the Law Requires Disclosure.  If the party receiving the information has to disclose it by law or to a regulatory body, then it should not get in trouble under the contract.  Some NDAs protect the disclosing party by requiring the other party to seek a protective court order, at the disclosing party’s expense, and only disclosing as much as is legally required.  Sometimes, though (like with certain law enforcement requests under the USA Patriot Act), the other party is not even allowed to tell the disclosing party that the government is seeking the information.
  4. How Can Confidential Information Be Used?  If one company is contracting with another to perform a service, then confidential information can usually be used only for performing that service.  If an employee is signing on to an NDA, the information can usually be used for anything related to employment.The range of options depends on the situation.
  5. Who Can Know Within the Company?  Often, NDAs provide that companies can pass on information to employees, contractors, officers, directors, attorneys and accountants on a need to know basis.  Individuals signing a confidentiality agreement may be able to disclose information to their immediate family members as well.  Many NDAs provide that the receiving company is responsible for any unauthorized disclosure, and some go so far as to require each recipient to have signed either an NDA or a corporate document by which it agrees to be bound by the terms of NDAs the company signs.
  6. If There is Intellectual Property.  If some of the confidential information relates to products being developed, or if the NDA is with a person or company who is being retained to help develop a product or something else that might generate intellectual property rights, the disclosing party needs to be protective.  Some NDAs prohibit reverse engineering, for example, while others assign to the disclosing party any rights to products developed using its assets or confidential information.
  7. How Long Does It Last?  It is unusual for confidentiality agreements between businesses to last forever.  Most often, they last for the term of the agreement, plus one to three years.  Beyond that, businesses simply cannot monitor compliance, and the confidential information may become stale over time (for instance, should parties really be concerned about monthly financial information from four years ago?).  With confidentiality in employment agreements, though, the contracts generally do not specify an end date.  It depends on all the facts and circumstances as to how long a confidentiality agreement should continue.
  8. How to Enforce It.  Confidentiality agreementscome beforea court much of the time through one party seeking an injunction or temporary restraining order:  trying to stop another from disclosing information in violation of the agreement.  NDAs often have language that seeks to relieve the disclosing party from some of the procedural headaches that go along with an application to a court for injunctive relief.

Confidentiality agreements are an important part of today’s business world.  Many of us will seek one or be subject to one over the course of our careers. In order to evaluate them, having an outline of the major provisions is a good first step.