Managing confidentiality – arrangements that work

Confidentiality (or non-disclosure) requirements are usually difficult to enforce.  Often they are broad and generalised, and an add on to a larger employment or other agreement. Also, once information has been disclosed there is no going back – your information is no longer confidential – so is there really an effective remedy for a breach?  You may receive financial compensation, but your information is still out there, known to the world. Not necessarily a great result for you!

However, this is not a reason to forget an agreement about confidentiality altogether.  In fact, quite the opposite.  It is a very good reason to give one considered thought.  Avoid rolling-out a standard template you downloaded from the web.  This is because, the more specifically tailored and negotiated a confidentiality term or agreement is, the more likely that its practical application will be more fully understood by the parties, but also more likely that a court will enforce the agreed terms to their full effect. 

The following are FIVE TIPS for ensuring good confidentiality requirements in your agreements or contracts:

1.  Define what information is “Confidential” (and, in some cases, what is not):

Make sure both parties understand what type of information is “confidential” for the purposes of the agreement.  Although often kept as broad as possible, the definition should be restricted to information that is genuinely confidential. If you don’t, you might find your agreement difficult to enforce. Confidential information might include business plans, computer systems and/or software, designs, devices, financial data, formulas, know-how, research, and/or technical information.  Information which is already known to the public, already known to the other party (pre-agreement) or which becomes public through no fault of the recipient should be specifically excluded. 

2.  Outline permissible uses – what are the expectations of the sharer?

Make your intentions clear by outlining how your information can be used. If you don’t, you risk the other party being able to use your information for a much wider purpose than you ever intended without the ability to prevent them from doing so or take suitable action. For example, when selling your business you will need to disclose information to prospective buyers during due diligence. Without clear parameters around the permitted uses for your information those buyers may obtain an unfair commercial advantage from your information even though there has been no disclosure, and particularly so if the sale does not go ahead. By defining permitted uses you are by implication defining uses that are not permitted. The latter can then constitute an enforceable breach of the arrangement.

3.  Storage, Use and Destruction and/or return of the information

Some information may require special arrangements to be made for its use and storage during the course of the project, for example, on a hard-drive, disk or memory stick.  Where you are disclosing to a party who will call on employees or external advisers to use the information, you should impose an obligation on the contracting party to ensure everyone within their control maintains the confidentiality.  Also, if appropriate, you may wish to include a requirement that the information be returned to you or destroyed when the project or relationship is over.

4.  Consider how long you want the information to remain confidential

If you wish the other party to refrain from disclosing your information forever you need to make sure the confidentiality clause or agreement outlives the completion of the project or relationship.  Alternatively, you may provide that the obligation ends with the project or relationship, or if, because of the nature of the information, disclosure would no longer negatively impact you on an identifiable date you might choose to include that date.

5.  Consider and describe enforcement options

Outline what will happen if your information is disclosed.  This puts the other party on clear notice that you mean business.  If appropriate you might like to consider including notice that you will attempt to prevent disclosure by legal means if you are given reasonable cause to suspect your information is about to be disclosed.

The remedy for breaching a confidentiality arrangement is not perfect. Unfortunately there is no way to make information secret again once made public! Despite this, commercial reality means that confidential information does sometimes need to be disclosed to further a project or relationship, and normally the benefit of releasing the information for the intended purpose can outweigh the threat and effect of disclosure.  By entering into a carefully drafted confidentiality agreement you can obtain a degree of certainty regarding the extent to which your information is protected.  We recommend that you consult your professional adviser to ensure that  your specific situation is covered.