Confidentiality agreements are legal contracts that prohibit someone from sharing information deemed confidential. In business, there are number of instances in which you may want to share confidential information with another party. But the key to doing so safely is making sure that the other party is bound to respect the confidential information you provide them and not use it to your disadvantage.
One common way to protect the secrecy of confidential information given to another party is through the use of a Confidentiality Agreement, which is sometimes also referred to as a Non-Disclosure Agreement or NDA.
Why Is It Important To Have A Confidentiality Agreement?
The Confidentiality Agreement is typically put to use any time that confidential information is disclosed to potential investors, creditors, clients, or suppliers. Without such a signed agreement, any information disclosed in trust can be used for malicious purposes or be made public accidentally. Confidentiality Agreement or a Non-Disclosure Agreement is a clear, well-written document that helps you to achieve your objectives and covers all necessary bases.
When Does It Make Sense To Require Another Party To Sign A Confidentiality Agreements?
There are probably many instances where it may be appropriate. But the principal situations are those in which you wish to convey something valuable about your business or idea, but still want to ensure that the other side doesn’t steal the information or use it without your approval.
Learn More : Why It’s Important to Protect a Companies Intangible Assets?
Here are some typical situations where you may want to use a Confidentiality Agreement:
- Presenting an invention or business idea to a potential partner, investor, or distributor
- Sharing financial, marketing, and other information with a prospective buyer of your business
- Showing a new product or technology to a prospective buyer or licensee
- Receiving services from a company or individual who may have access to some sensitive information in providing those services
- Allowing employees access to confidential and proprietary information of your business during the course of their job.
What Could Happen If You Don’t Use a Confidentiality Agreement?
The worst scenario that could happen is that the company may lose potential earnings, name or brand recognition, and future business opportunities from another party profiting of the ideas or confidential information. All of these losses may also take a significant mental toll. However, while a confidentiality agreement cannot prevent someone profiting from your ideas or information, it ensures you can be legally compensated if they do.
Read More : What to Protect in a Companies Intangible Assets?
Confidentiality agreements can also deter people or businesses from profiting from your information, as they know they’ll face legal consequences — including financial penalties and a court order to stop business stemming from the information if they do. The reputation of the entity that disclosed the sensitive information may also suffer in the short and long term. Taking the disclosing party to court is still an option, but without a confidentiality agreement, the legal battle will be lengthier and more expensive.
Information Protected by a Confidentiality Agreement
The information protected by a confidentiality agreement sets one or both parties apart. A confidentiality agreement must clearly state the information it protects.
- Intellectual property and proprietary information, including:
- Secret formulas
- Trade secrets
- Recipes
- Proprietary software
- Computer technology
- Scientific information
- Copyrights
- Engineering drawings, designs, systems, or specifications for existing products or products in development
- Prototypes and samples
- Unpublished patent applications
- Concepts and know-how for future products, services, or practices
- Manufacturing processes and production methods
- Sales plans and marketing information and materials (including marketing campaigns and projects)
- Details regarding customers or clients and sales contacts (including client lists, contracts, and business relationships)
- Business information, operational procedures, and strategies (including personnel data of management and employees)
- Business communications
- Product and service information (including procedures, packaging, equipment, tools, and techniques used to make the product)
- Test data and test results from employer
- Transaction details and other financial information (including internal cost information, accounting procedures, reports, software, and payroll data)
Every confidential agreement has certain exclusions from the obligations of the receiving party.
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