The Confidentiality Agreement

December 2009

Introduction

If you are in business, you have most likely been required to sign a Confidentiality Agreement. This document is widely used to protect sensitive business information. This article summarizes this practical tool.

Utility

A Confidentiality Agreement is used when confidential information about your business is conveyed to another person and you want to ensure it will be maintained in secrecy. For example, when discussing with a potential buyer, you will need to disclose your financial results in order for the buyer to make you an offer and you do not want this information made public.

Scope

Be aware that only confidential business information can be protected. In other words, if information is already known to the public (for example, you mention your turnover on your website), this information can obviously not be part of a Confidentiality Agreement.  Confidentiality Agreements generally provide an exclusion for information known to the public.

Sometimes the Confidentiality Agreement may include a provision to the effect that the information covered be identified as ‘’Confidential’’. Thus, if you subsequently transmit information to the signatory of the agreement, make sure the word ‘’Confidential’’ is clearly stamped at the top of the documents submitted.

Duration

It is customary to limit the duration of a Confidentiality Agreement. Although there is no formal rule on this issue, a two-year term is often seen, which term may of course vary depending on the information disclosed and the parties involved.

Ownership of Confidential Information

The Confidentiality Agreement generally states that the confidential information remains the property of the discloser. Therefore the person who receives it undertakes to return it to the discloser upon request without retaining any copies.

Exclusion

It is customary to provide that in the event that the person who receives the confidential information is forced to disclose it by a body with jurisdiction to compel (e.g. a court), it would then be relieved of its confidentiality commitment. Some nuances may apply, such as the obligation to notify the discloser before transmitting this information to the organization in question. Thus the discloser will be able to oppose this constraint by judicial means.

Conclusion

It is very important to read the Confidentiality Agreement carefully before signing it. If you are unsure of the scope of this document, consult your lawyer. You can avoid trouble.