General Considerations - Confidentiality Agreements

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1. Should you disclose confidential information?
Do you actually want or need to disclose your confidential information? If you need to disclose information, consider how much you need to disclose.

2. Should you receive confidential information?
Do you want or need to receive confidential information from another party? There could be significant ramifications to receiving confidential information: confidentiality agreements typically impose restrictions on how you may use that information (not just whether you may disclose it).

These restrictions on using another party's confidential information could potentially hinder your business significantly. For example, you may be prevented from developing a service or product based on the information you receive.

For this reason, from the perspective of the receiving party, restrictions on use may not be appropriate in some circumstances. Or, the receiving party may wish to specify that the disclosing party will not disclose certain types of information.

3. Do you require one-way or mutual confidentiality?
Will only one party be disclosing confidential information or will both parties disclose information to each other?

If only one party will be disclosing confidential information, use a one-way confidentiality agreement. If both parties will be disclosing, use a mutual confidentiality agreement.

4. How should "confidential information" be defined?
There are two broad approaches to defining confidential information:

• All-inclusive approach: "confidential information" is defined broadly, including all information relating to a party's business. Typically, the definition will list categories of information covered, such as technology, personnel, marketing, customers, finances, products or services.
• Procedural/specified approach: "confidential information" is limited to information defined by some procedure or by specification. For example,
  
  • all information marked "confidential"
  • all information printed on purple paper
  • only information disclosed in writing or if disclosed orally, reduced to writing within a specified time period
  • only information disclosed between specified dates
  • only the following information: X, Y and Z

In general, the disclosing party will prefer the all-inclusive approach, which protects against disclosure that inadvertently disregards specified procedures like marking. The all-inclusive approach may also be preferred because it requires less scrutiny and work upfront to determine whether something is confidential and, if so, to make sure the correct procedure is followed. However, the approach may also create a false sense of security, resulting in sloppy practices when disclosing confidential information.

The receiving party will generally prefer a procedural/specified approach, which limits what is covered by confidentiality obligations.

5. Do you need to specify how disclosed information can be used?
Confidentiality agreements typically state the purpose for which the information can be used (for example, "to evaluate a potential business relationship") and restrict the use of the information to that purpose.

It is possible for a confidentiality agreement to omit this type of provision. Without a clause restricting use, the receiving party would still be obligated not to disclose the information, but could use the information for any purpose.

For the disclosing party, the restriction on use may be important to prevent the receiving party from using the disclosed information, for example, to develop a competing product. Equally, if there is a restriction on use, a receiving party should consider carefully whether it wishes to receive certain kinds of information that may impair its ability to develop technology or products.

6. Good practices

• Keep your confidential information confidential. This means taking reasonable measures, for written and electronic information, to keep it confidential. Without proper measures, you risk unauthorized access to your confidential information and if there's ever a dispute about whether your information is truly confidential, you risk that a court will find it not to be confidential.
• It's prudent to mark confidential documents to be disclosed as "confidential", even with a confidentiality agreement that uses the all-inclusive approach.
• Keep a record of and segregate confidential documents you receive, so you can always identify what's been received in confidence. If required to return or destroy confidential information, you can then easily identify what should be returned or destroyed.

Important: LexPublica does not provide legal advice (see our Terms of Service). There may be other important issues to consider in your particular circumstances. To assist you with your specific situation, you should consult a lawyer in your jurisdiction.