Confidentiality agreements (also known as NDAs) typically enable you to disclose commercially sensitive information to a third party, such as suppliers, collaborators or buyers.
If you do not have a confidentiality agreement you will need to rely on the law of confidence. You will need to show that the information had the necessary quality of confidence, the idea was disclosed in circumstances where a confidentiality obligation can be assumed and that there has been unauthorised use of the information. This can be difficult to prove. A bespoke confidentiality agreement avoids this hassle and keeps your most valuable information contractually secure.
Typical uses for confidentiality agreements
Confidentiality agreements are increasingly common in many business contexts, particularly where there is a new product in development or a potential upcoming sale of the business.
They are often used in the following ways:
- For employees – confidentiality should be a standard employment term but further restrictions may be needed for senior team members or developers
- Relating to intellectual property or inventions
- Where agents and distributors are used to facilitate your sales
- For key services providers such as IT support – with the Data Protection Act 2018 and the Privacy and Electronic Communications Regulations in force additional safeguards may be needed
- Where parties are negotiating new transactions such as a business sale or joint venture.
Common myths about NDAs
There are a number of misconceptions about confidentiality agreements and why they really are necessary.
- “NDAs are worthless” – confidentiality agreements are the standard tool for protecting commercial information. The threat of breach of contract enables competing parties to negotiate freely without fear of disclosure and risk of substantial losses. They are only ‘worthless’ if they are not adequately drafted to reflect the circumstances.
- “Confidential information is not intellectual property” – often the most valuable and under-protected form of IP right, confidential information can be an important asset for a business. Whilst many IP rights need to be registered (and costs spent on registration fees), trade secrets are protected in themselves as long as they remain confidential.
- “When an NDA ends the information is no longer confidential” – expiry of a contractual term of confidentiality does not necessarily mean the information is not confidential. It may well be covered by an extension or the common law concept of confidence.
- “The law is clear” – there is no single ‘confidentiality law’. Instead the duty of confidence has developed in the courts to maintain fairness. To get over the hurdles developed in case law an NDA must be well drafted.
Template or tailored?
There are a number of template agreements freely available online. We would always caution against using these because there are a number of pitfalls that will render the agreement unenforceable – and as information is highly valuable to your business it is not worth that risk.
A tailored agreement with professional input goes a long way in protecting your most valuable assets. We understand what is at stake and provide you with clear advice on the who, where, what, when, why and how of confidentiality agreements.
- Who to include? – if you are dealing with a corporate entity should disclosure be limited only to certain senior employees? Should those employees also be required to sign? Ensuring that signatories face a personal liability risk generally offers more assurance.
- What to include? – where you are disclosing supplier lists, details of client contracts or customer information you may be sharing personal data which needs to be protected in accordance with the Data Protection Act 2018. It may also be tempting to make the definition of ‘confidential information’ as wide as possible but merely describing the information as confidential will not give it the ‘necessary quality of confidence’ to be protected and the court may refuse to uphold such a definition.
- Staged release of information – if information is highly confidential, for example a trade secret recipe or method of production, you may want to disclose some information first and withhold the most sensitive information until the other party demonstrates trust or moves forward towards formalising the underlying arrangement.
- Return of information and documents disclosed – if the reason for disclosing information, such as an offer to purchase your business, falls through, ensure you have a right to the immediate return or destruction of all information, including all copies and versions stored as metadata.
- Forced disclosure – where a disclosure is required by law, if possible do you want to be consulted on the timing, manner and content of the disclosure?
- Is it enforceable? – do not include clauses which are excessive, for example, it may be tempting to include a clause whereby if there is a breach there is a large financial penalty for the wrongdoing party – these types of clauses (known as liquidated damages clauses) are generally not enforceable.
- Right to apply for an injunction – always include lawful safeguards such as clear terms stating that if there is a breach, the innocent party will be entitled to apply for an injunction.
- Jurisdiction – ensure that the agreement provides that English law applies and the English courts have jurisdiction to determine disputes or matters relating to the agreement – this is particularly important where you are disclosing confidential information to a person/business outside of the UK.
When we draft our agreements we aim to minimise the risk of breaches. But data theft by employees and competitors is a significant risk to any business, regardless of turnover. To preserve value and your competitive edge, fast and decisive action is needed.
Our dispute team is highly responsive and focused on achieving effective remedies for your business.