3 Tips for Confidentiality Agreements
You might be asked to sign a confidentiality or non-disclosure agreement if you are exploring the purchase or sale of a business, a joint venture, a merger, or other significant contractual relationship. You might think confidentiality agreements are boilerplate that can be signed without any legal review, but that could result in a bad agreement. Lawyer review shouldn't take long or cost much, but can result in valuable advice and changes to protect your confidential information.
Here are three areas I focus on when reviewing a confidentiality agreement for a client:
Are the confidentiality obligations mutual? I see many confidentiality agreements that only protect the information of one party. But in many situations both parties are disclosing confidential information. Therefore, the confidentiality agreement should be reciprocal - i.e., each party should be identified as a disclosing party and a receiving party, and, be required to protect any confidential information disclosed to it.
Does the definition of "confidential information" fit? The confidentiality agreement should include a definition of "confidential information," and most do. The challenge here is to make sure that the definition includes all types of information you anticipate might be disclosed. The risk is that disclosed information will not be protected as confidential if it does not fall within the definition of confidential information in the agreement. The customary approach is to include a list of the types of information that will be considered confidential. In that instance, you should confirm that the list includes types of information that will be disclosed. In some instances, the agreement might define confidential information as only that information that is marked "confidential." If information is disclosed verbally, under this approach, the disclosing party typically has a short period of time to memorialize the verbal information in writing and mark it "confidential." This is risky because if the disclosing fails to mark something as "confidential," or fails to memorialize verbal disclosures into writing, then that disclosed information will not be protected under the agreement. I strongly oppose that approach to defining confidential information, although I believe it's always a good practice to mark information to be protected as "confidential."
How long does the confidentiality obligation last? Many confidentiality agreements indicate that the obligation to keep information confidential will expire after a period of time (e.g., 3 years or 5 years). My concern is that many types of confidential information live for much longer than the obligation expiration dates in a contract. For example, would you want your financial information to lose its protection as confidential information after 3 years? No, because that information needs to remain confidential, likely forever. So language in the agreement relating to the duration of the confidentiality obligations needs to be carefully drafted to ensure that the obligation to keep information confidential continues for as long as information remains confidential.
Don't take confidentiality agreements lightly. Do have a lawyer look at them and make necessary changes before you sign them. I'm always available to help.