Almost every business has confidential and private information whether it is in the form of an invention, a business plan, a customer list, a manufacturing process, financial records, computer software or some other type of proprietary information. Since the unauthorized disclosure or use of this information would have a significant adverse impact on the business, it is of paramount importance that businesses take proper steps to secure such information. Confidentiality agreements, also known as non-disclosure agreements (or NDAs), are an essential method of protecting and safeguarding proprietary information.

A confidentiality agreement is a contract whereby the disclosing party agrees to disclose or make available to the receiving party certain confidential information in order to further some business purpose and the receiving party, in return, agrees not to disclose or otherwise misappropriate such information. The agreement creates a confidential relationship between the parties so that the disclosing party would have legal recourse against the receiving party in the event the latter wrongfully disclosed or used (or threatened to wrongfully disclose or use) the confidential information.

The use of an NDA is particularly important when a business engages an independent contractor who, in the course of providing services, will have access to confidential information. The independent contractor, unlike an employee, has no loyalty to the business. The simple act of requiring an independent contractor to sign an NDA prior to providing services sends a strong message. It alerts the independent contractor to the confidential nature of the information and the serious consequences that would stem from the breach of his or her obligation to maintain that confidentiality.

While requiring an independent contractor to sign an NDA is the first step in preventing the unauthorized disclosure and use of proprietary information, it is equally important that the NDA be properly drafted. Businesses should resist the temptation to use one of the many form confidentiality agreements available on the internet or in form books. By using a generic NDA, the business runs the risk that the NDA does not include critical provisions, or that it is unenforceable because it is overly broad, vague or unconscionable. The most effective NDAs are those that are reasonable and tailored to the particular circumstances and the needs of the disclosing party’s business.

There are numerous elements that should be taken into account when drafting an appropriate NDA. The following highlights several of the more pertinent elements:

1. DEFINITION OF CONFIDENTIAL INFORMATION

The most important provision of an NDA is the description of what constitutes confidential information. This is also the area in which many form agreements fall short. Form agreements generally contain a laundry list of confidential information that does not accurately reflect the information being disclosed. While, as the one disclosing the information, it might seem beneficial for confidential information to be broadly defined, it is better practice to define specifically the scope of the information being disclosed in order to avoid ambiguity and ensure the enforceability of the NDA. On the other hand, however, the definition should not be so narrow that it omits confidential information or contains so much detail that it has the effect of revealing confidential information to the receiving party before his or her execution of the agreement.

2. EXCLUSIONS FROM CONFIDENTIAL INFORMATION

Almost as important as defining what information is confidential is specifying information that is not confidential. Since the receiving party is not obligated to keep specifically excluded information confidential, one must give careful attention to drafting the exclusions. Otherwise, one runs the risk of undermining the entire purpose of the NDA.

3. OBLIGATIONS OF THE RECEIVING PARTY

In addition to restricting the receiving party from disclosing confidential information to third parties, the NDA must prevent the receiving party’s unauthorized use of the information. The failure to include a non- use provision would mean the receiving party would be free to use the confidential information for his or her own benefit provided he or she did not disclose the information.

4. REMEDIES

If the receiving party breaches his or her obligations under the NDA, the disclosing party will have an action for breach of contract. This typically means that there is the potential for money damages to help compensate for the harm caused by the wrongful disclosure. However, since damages can be an inadequate remedy, the NDA must also include the right for the disclosing party to seek injunctive relief. The right to obtain injunctive relief means the disclosing party can obtain a court order mandating that the receiving party cease ongoing disclosure in the event of a breach or preventing disclosure in the event of a threatened breach. For more information, please contact Justin L. Galletti (jgalletti@brodywilk.com).