Do I Really Need an Attorney to Review a Confidentiality Agreement?
Updated: May 17, 2020
You should have a Confidentiality Agreement in place if you are evaluating a potential deal. (The only difference between a "Confidentiality Agreement" and a "Non-Disclosure Agreement" is the name.) It protects the information you disclose to the other party.
Confidentiality Agreements usually are just a few pages long. Many people consider them forms that you can sign without reading or engaging an attorney to review. That's a gamble, though. I have seen many Confidentiality Agreements that are sloppy, incomplete, or that don't fit the circumstances of the relationship. Signing a bad Confidentiality Agreement can lead to a lot of problems.
Here are some problems I recently encountered when reviewing several Confidentiality Agreements:
Who are the parties? I recently reviewed a Confidentiality Agreement for an asset purchase deal that had the seller and the broker as the parties to the agreement, but not the buyer. If the agreement hadn't been changed, the seller would have turned over confidential information to the buyer, but the buyer would not have been bound by the Confidentiality Agreement. Make sure you get the parties right - it matters.
What is included in the definition of confidential information? Pay attention to the laundry list of stuff that's included in the definition and make sure it matches what you intend to disclose. If it's not included in the definition, it's not protected. A common approach is to define confidential information as only that information the disclosing party marks as "confidential." I hate that approach because it means that if the disclosing party inadvertently fails to label something as confidential, it's not protected. That's too much risk.
What can the receiving party do with the disclosing party's confidential information? The Confidentiality Agreement should describe the limited permitted uses for the information - e.g., to evaluate the possibility of doing a deal.
What can't the receiving party do with the disclosing party's confidential information? I like Confidentiality Agreements that tell the parties not only what they can do with the other party's confidential information, but also what they can't do with it - e.g., disclose it to others, use it for their own benefit (other than for evaluating the potential deal), etc.
When does the protection start? Many Confidentiality Agreements indicate protection starts when the agreement is signed. If you disclosed confidential information before the agreement was signed, however, it won't be protected. In that case, you should make sure the Confidentiality Agreement has language that protects confidential information that was disclosed before the agreement was signed.
When does the protection end? Many Confidentiality Agreements contain an end-date for protection - 3 years, 5 years, etc. The length of the protection should roughly match up with how quickly confidential information gets stale in your industry. Note, however, that if your confidential information is considered a "trade secret" under federal or state law, you want language indicating that the Confidentiality Agreement's protections will last as long as that information remains a trade secret.
Other problems might arise, too. I recommend you not try to DIY your Confidentiality Agreement (e.g., by just Googling for one). Your best protection comes from engaging an attorney who has experience drafting and reviewing Confidentiality Agreements.