What is a Confidentiality Agreement?

It is very common for companies to enter into Confidentiality Agreements to reduce the risk of trade secrets being divulged when confidential information is shared with external parties. Confidentiality Agreements can be used in a number of contexts such as collaborations, negotiations, interviews or consulting assignments. Confidentiality Agreements are also known as Non-Disclosure Agreements or simply "NDAs".

Why is a Confidentiality Agreement important? 

The purpose of a Confidentiality Agreement is to protect your trade secrets. Almost all companies have confidential information relating to products, customers, pricing models, development opportunities, etc. If this information ends up in the wrong hands, the company may suffer serious loss. Despite this, it's often necessary to share trade secrets with other parties, for example in connection with a potential partner, customer or investor. In these cases, it is important to clearly regulate how the other party uses the information through a Confidentiality Agreement. 

What should you think about? 

  • The Confidentiality Agreement must cover all information, regardless of form, that you intend to share. Remember that oral information should also be covered.

  • Make sure the agreement is signed by both parties before you share the information.

  • Make sure the agreement provides for the return or destruction of the confidential information at the end of the relationship with the other party.

  • Make sure you legally own all the information / data (copyright) that you share so there is no ambiguity around who owns the information shared. 

  • Remember a Confidentiality Agreement can be used as evidence in court in the event of a dispute. A well-written agreement will make it easier to limit any unauthorised sharing of your confidential information and reduces the likelihood of future damage to the company. 

What you need to do

What you should include in your Confidentiality Agreement will depend why you need to protect the information. You should think about the following:  

  • What information are you trying to protect?

  • Why is the information being shared? Is it due to a collaboration, hiring a consultant, a potential venture with investors, or something else?

  • What obligations can you reasonably impose on the other party?  This will depend on who the other party is, the type of information and the relative bargaining strengths of the parties.

Common mistakes

  • Only entering into an oral confidentiality agreement. Although an oral confidentiality agreement is legally binding, it is very difficult to rely on.

  • Failing to clearly describe all the information that must be kept confidential.  For example, analysis dervived from the information shared should also be considered confidential.

  • Not requiring that the other party impose confidentiality obligations on any third party (such as its agents or representatives) that it is allowed to share your information with.

This is how PocketLaw can help you

Downloading a template is easy. Knowing how a legal document creates value for your company is more difficult. That's why we created PocketLaw - to guide you in what legal you need, and to get it in place. In PocketLaw's platform, you can easily create a Confidentiality Agreement by answering simple questions and sending directly for e-signing. In addition, you can store your agreements in our clever document management system, and also get legal guidance as well as personal advice. Everything you need to grow your business and drive it forward.