It is sometimes important for one or other party to a discussion concerning a new venture that the discussions are kept strictly confidential. It is useful to record any agreement concerning confidentiality in writing and to have that agreement signed before sensitive information is passed from one side to the other.
This form of confidentiality agreement is designed to ensure that neither party discloses any information given to it by the other. Although the disclosure is likely to be somewhat one-sided - e.g. an inventor giving information to a manufacturer, the agreement is drafted so as to commit both parties to maintaining confidentiality on any information of a confidential nature which they receive. The wording of the agreement is, we hope, self-explanatory and our comments are confined to the following:
Clause 1 makes it clear that all information is to be treated as confidential and defines what is meant by "Confidential Information". Note, however, the exceptions in clause 8.
Clause 2 imposes obligations on each party to ensure that confidential information which it received is not passed on to any third party. Where employees need to be involved, they, in turn, will be subjected to confidentiality undertakings. If the party providing the confidential information wants to be really careful, he may want to vary this clause so as to ensure that the recipient produces signed confidentiality undertakings from his employees and others before that information is passed on to them. Disclosure to professional advisors (e.g. lawyers, accountants) of one of the parties may often be appropriate and the final sentence of clause 2 provides for this.
Clause 3 restricts the copying of confidential information.
Clause 4 requires all confidential information to be returned if the negotiations break off. The Clause also makes it clear that the confidential information that each of them receives is only to be used on a joint project, assuming the project goes ahead.
Clause 5 contemplates a minimum period before the negotiations come to an end and then allows either party to withdraw from the negotiations by giving notice. Until withdrawal, this clause imposes a restriction on both parties, preventing them from discussing the project with anyone else while the negotiations between them continue. This is quite important since, for example, a company considering an invention which is brought to it would not want to find that the inventor is in negotiations with a competitor. Once the negotiations end, either party is free to approach third parties, but it will have returned all confidential information by then and it will still be bound by the confidentiality obligations in the Agreement
Clause 6 obliges each party to tell the other party as soon as it becomes aware that the confidentiality obligations have been breached. This is important because it allows the party whose confidential information has been misused to take action to protect its interests as soon as possible.
Clause 7 makes it clear that by providing information a party is not making a warranty or representation that might otherwise result in a claim if it later turns out to be incorrect. Once they reach agreement on going ahead with the development, the contract to be entered into at that time should deal with these matters.
Clause 8 makes it clear that confidential information will cease to be treated as confidential if it is publicly available or disclosed by order of the courts or a relevant regulatory authority.
Clause 9 is a “catch-all” provision that prevents either party from making use of the confidential information in any way that may be against the interests of the other party. Its main use is to act as a warning. There may be difficulties in relying upon this clause in any litigation.
Clause 10 provides for each party to indemnify the other against losses incurred as a result of a breach of the confidentiality obligations. An indemnity is, in effect, an agreement to make good all the costs and losses suffered by the innocent party.
Clause 11 makes it easier for a Party to obtain an injunction (a speedy order from the court that obliges the other Party to desist from doing something that constitutes a breach of the Agreement).
Clause 12 makes it clear that the confidentiality obligation is open-ended.
Clause 13 makes it clear that neither party can assign the agreement to any third party.
Clause 14 specifies the governing law and provides for the courts to have jurisdiction in the event of any dispute.
For more details about governing law and jurisdiction there are free documents on our website.
Those entering into a confidentiality agreement such as this should bear in mind that enforcement of the agreement can prove to be difficult. Having said this, it is always better to have a confidentiality agreement than no agreement at all if you want to maintain secrecy while you are in negotiations.