confidentiality agreement

Confidentiality agreements come in a range of flavours and styles. Although a formal contract is often desirable to make it quite clear of the legal obligations of the receivers of confidentiality, there are no strict formal requirements which must be satisfied to establish a relationship which restricts dissemination of information, other than a clear intention that the information and communications in the relationship are communicated to the recipient on a confidential basis.

These types of contracts are also referred to as “NDAs”, “NDA agreements”, “Non-Disclosure Agreements”. As with all contracts, it is less of matter of what they are title or called, and more of a matter of the legal effect of the words used.

Two Types of NDAs

Generally speaking there are two types of confidentiality contracts. These sorts of provisions are able to be set out in standalone, dedicated contracts or in larger commercial agreements, such as distribution, reseller, sponsorship agreements, commission agreements, to name a few.

1. One-way: in contracts such as these, the communications, information and affairs which may come into the possession of a single recipient is considered confidential, and not the other way around.
2. Mutual: each party owes the other the same or similar duties to keep secret information secret.

While these are two general types of NDA, there are many variations on the themes of the two types. When read carefully, some NDAs which are said to be mutual are not really mutual at all, because the duties owed by one party to the other are not mirrored back the other party.

Clauses in Confidentiality Agreements

Also, not all confidentiality agreements are equal. The types of clauses which can form part of the agreement include:

1. Types of Information: Some NDAs include extensive lists of types of information, reports, data, source code, design notes which are covered. Others do it in with a general definition. The problem is this – if it is a general definition, there may be problems proving that the information was intended to be confidential. If long lists of types of information are listed, if an item is not in the list, was it intended to be covered by the agreement?
2. Types of Communication: It may be provided that the types of communication covered limited to writing or oral, or both. Also, if notes are taken by the receiver of the information, is that also covered?
3. Purpose: Rather than providing blanket provisions for non-disclosure, setting out the Purposes which it can be released can include for the intentions of the parties. Sharing might be permitted of further negotiations for a larger business agreement, the performance of a contract, for research uses or whatever is required for the contract to work;
4. Third Parties: Is disclosure to third parties related to one of the parties permitted? A party may be part of a larger group of companies, or need to work with third parties, such as subcontractors.
5. Destruction and/or Return: Should a disclosing party be entitled to insist on destruction or return of confidential information when the purpose is complete? Should that destruction also be certified by the recipient?
6. Licences: Should any implied licences to use the material communicated be expressly prohibited?
7. Accuracy: Should the discloser ensure that no warranty is given for deficiencies in the accuracy, adequacy or completeness of the materials provided? What happens in circumstances where the recipient is expected to rely on disclosures?
8. Lapse: Should the contact state that the duties of confidentiality extend without limit of time, or is it appropriate to simply allow the duties in respect of material provided to lapse after a fixed period of time?
9. Governing law and jurisdiction: If the businesses are in different countries, does the contract have choice of law clause and jurisdiction clause in the event of a breach of contract?

Exclusions to duties of Confidence
Despite the terms of an NDA, courts are unlikely to enforce an NDA agreement where:

1. information is able to be developed independently, without reference to information provided to the recipient;
2. the same material was received from a third party, who is not in breach of any legal duty;
3. a court or a competent authority orders production of the materials, or the knowledge is must be disclosed in response to a request under Freedom of Information legislation;
4. the material has entered the public domain, rightly or wrongly.

Notes of Caution:

1. If it is your job to read over and approve a confidentiality agreement, watch out for large blocks of text in paragraphs of a draft NDA. There tend to be dragons in them thar paragraphs. One word in a contract can bring an entirely different – and unexpected – meaning and  legal effect to the contract.
2. In mutual NDAs, watch out for legal obligations which are not mutual. These are clauses which treat one party differently to another. For instance, all of one party’s communications might be stated to be protected, regardless of the form of the communication – orally or in writing. The other party (usually the party with less bargaining power), may need to mark the information as confidential information in order to obtain the benefit protection.
3. If the other party takes their time responding to your requests, but then requests – imposes – very tight time turnarounds on you, very loud alarm bells should start ringing. The objective might be to rush you so that you do not have the opportunity to properly consider what you are reading. See paragraph 1 above.
4. Just because it is titled “NDA” or “NDA Agreement” does not mean that is what it is. NDAs often include legal obligations for other matters as well, which can catch the unwary by surprise, and almost invariably to their detriment rather than benefit. If yours does, it would not be the first time it has happened. There may be assignments of copyright and other intellectual property rights, non-competition clauses included. It is OK to sign up for these types of provisions, provided you are aware and know what you are signing up to – along with the legal affect.