Non-disclosure/confidentiality agreements

Nowadays in the world of technology and startups, the product idea or technology under development is often the most valuable asset of the company. It is critical to execute a confidentiality agreement respecting the confidential nature of the company’s information not only with employees and independent contractors, but founders should not forget to sign the same agreement with each other. Also if the information is to be revealed to any third party, the confidentiality agreement should be signed beforehand.

Non-Disclosure/Confidentiality Agreements bind the parties to keep certain business information that they may obtain during their involvement with the company as a secret. It also prevents them from disclosing it to the company’s competitors, the public or from using it for their own benefit.

Almost any confidential, not-publicly known information used in the conduct of one’s business may be protected as a trade secret. For example, a trade secret may consist of formulas, manufacturing techniques and product specifications, customer lists and information, information related to merchandising, costs and pricing, internal company’s practices, and any new business-related ideas; in other words, proprietary information of the company. However, not all information can be protected. In order for the agreement to be enforceable the information should:

•      Derive economical value from not being generally known or readily ascertainable.

•      Be the subject of its owner’s reasonable efforts to keep it confidential.

Other exclusions from Confidential Information

•      Information already in the receiving party’s possession prior to disclosure

•      Information that is or becomes generally available to the public other than as a result of the recipient's disclosure

•      Information that becomes available to the recipient on a non-confidential basis from a source which is entitled to disclose it non-confidentially

•      Information that was independently developed by the recipient, including by means of reverse engineering

When to Use Non-Disclosure Agreements

•      Disclosing a new product to a potential investor

•      Giving access to business information to employees and/or partners

•      Contractual relationship with third parties, which may have access to confidential information (e.g. independent contractors, suppliers, distributors, etc.)

•      Anytime the information you are disclosing, if used by others, would lessen your competitive advantage

In a non-disclosure agreement the disclosing party should include:

·        The detailed definition of confidential information;

·        The purpose for which this information is being disclosed and the list of situations it may be used in;

·        The time period of confidentiality;

·        The term (in years) the agreement is binding;

·        The obligations of the recipient regarding the confidential information, such as to use it for enumerated purposes, to use reasonable efforts to keep it secure, to ensure that anyone to whom the information is disclosed further abides by the same obligations as contained in their agreement;

·        Types of permissible disclosure, such as those required by law or court order.

A broad general non-disclosure agreement will be not enforceable in case of a dispute.

Much of the trade secrets law focuses on the risks that employees, former or prospective business partners and various affiliates can pose to trade secrets. Thoughtful diligence in identifying potential recipients of the confidential information, controlling and documenting disclosures, and establishing contractual and practical safeguards to prevent unauthorized use or disclosure can help prevent trade secrets misappropriation, acquisition by accident or mistake, wrongful taking, unauthorized use, misunderstandings and disputes between the parties and often helps to avoid protracted and costly litigation.