Confidential
Agreement: The Best way to maintain
business secrecy
By Samata Ingale,
LL.B., Pune
University.
The world of business demands lot of
risk factor and also the need of maintaining business secretes. The
Intellectual property laws have proved to be useful in giving recognition or
trade mark to any creation or discovery by a particular entity. However
confidential agreements can provide security for maintaining secrecy in the
business projects.
It
is of at most importance to get to know the definition of Confidential
Agreements for better understanding of its usage. Confidential Agreements are
also know as non-disclosure agreement (NDA) or confidential disclosure
agreement or CDA. Confidential agreement is a legal contract between at least
two parties that outlines confidential materials or knowledge the parties wish
to share with one another for certain purposes, but wish to restrict access to.
It is a contract through which the parties agree not to disclose information
covered by the agreement. An NDA creates a confidential relationship between
the parties to protect any type of confidential and proprietary information or
a trade secret. As such, an NDA protects non-public business information.
The
question generally arises for which kind of situation a Confidential Agreement
can be signed. The general situations observed are as follows.
*
When a company or individual has a secret process or a new product that it
wants another company to evaluate as a precursor to a comprehensive licensing
agreement. Or, perhaps one party wants to evaluate another's existing
commercial product for a new and different application.
*
NDAs are commonly signed when two companies or individuals are considering
doing business and need to understand the processes used in each others
business for the purpose of evaluating the potential business relationship.
NDAs can be "mutual", meaning both parties are restricted in their
use of the materials provided, or they can restrict the use of material by a
single party.
*
It is also possible for an employee to sign an NDA or NDA-like agreement with
an employer. In fact, some employment agreements will include a clause
restricting employees use and dissemination of company-owned "confidential
information." NDAs are used in the IT field, and are often given directly
prior to taking a certification exam.
It
is always considered beneficial to go for NDA as it performs distinctive
features.
*
First and most obviously, they protect sensitive technical or commercial
information from disclosure to others. One or more participants in the
agreement may promise to not disclose technical information received from the
other party. If the information is revealed to another individual or company,
the injured party has cause to claim a breach of contract and can seek
injunctive and monetary damages.
*
Second, the use of confidentiality agreements can prevent the forfeiture of
valuable patent rights. Under
*
Third, confidentiality agreements define exactly what information can and
cannot be disclosed. This is usually accomplished by specifically classifying
the non disclosable information as confidential or proprietary. The definition
of this term is, of course, subject to negotiation. As one would imagine, the
company or individual disclosing the confidential information (the
"discloser") would like the definition to be as all-inclusive as
possible; on the other hand, the company receiving the confidential information
(the "recipient") would like to see as narrowly focused a definition
as possible.
The
type of information that can be included under the umbrella of confidential
information is virtually unlimited. Any information that flows between the
parties can be considered confidential—data, know-how, prototypes, engineering
drawings, computer software, test results, tools, systems, and specifications.
This list is certainly not exhaustive but does illustrate the breadth of items
that can be deemed confidential.
Modern
NDAs will typically include a laundry-list of types of items which are covered,
including unpublished patent applications, know-how, schema, financial
information, verbal representations, financial information, customer lists,
vendor lists, business practices, business strategies, strategies, etc.
It
is of utmost importance to draft a Confidential Agreement containing all the
information required along with the explicit subject matter and the duration
for which the information is not be
disclosed. The following information is required.
1.
Identifying the parties:- The agreement should specify the following
*
Name of the person/organisation that reveals information or know-how (owner or
discloser);
*
Name of the person/organisation that receives information or know-how and is
responsible for ensuring its confidentiality (recipient).
2.
Statement of reasons:- A short paragraph can be useful in order to
define the context in which the information will be
disclosed, and the reasons behind the parties' wish to communicate the
information as the subject of a contract.
3.
Definitions: - A list containing a definition of the terms which will be
used in the remainder of the contract can facilitate a more precise
interpretation of both the contract and the parties' intentions.
In
the event of a dispute, it must be possible to determine what parties really
understand by terms such as "confidential information" or
"disclosure", by reading these definitions.
4.
Subject: - It is necessary to describe the subject of the agreement,
since this is a factor that determines the type of contract. The description of
the subject matter can prevent the contract from being upgraded to another type
of agreement.
5.
Disclosed information:- It is important to know how the subject matter
of the confidentiality agreement is to be disclosed. At least two hypothetical
cases can arise –
Firstly
the information is completely related to a precise project this is called as
Specific disclosure eg: the description of an invention.
Secondly
the information shall be revealed gradually in an extended collaboration
between the parties this is called as extended disclosure eg: during the course
of RTD project.
5a. Specific disclosure of information: In this case,
before the request for patent is carried out the inventor wants to enter into a
contract with the manufacturer so it is advisable to list precisely as possible
the information and documents which will be revealed.
5b. Extended disclosure of information:- When ever there
is a long term partnership, or under a RTD project,
for example, parties cannot always determine beforehand the information and
documents which will be revealed.
It is advisable, then, to set up a system to classify as
"confidential" information which will be disclosed later and at
various intervals over a period of time, in order to benefit from the
protection granted by the confidentiality agreement.
Conclusion:- NDAs or Confidential Agreements provides
security while dealing with important business information. In cases where
there is a dispute regarding a patent or an idea bean leaked out. In the
absence of the agreement it has been observed, the cost of litigation is
greater than the value of idea. In order to avoid all the possibilities of harm
latter its better to sign up for a NDA.