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 U.S. law and in other countries as well, the public disclosure of an invention can be deemed as a forfeiture of patent rights in that invention. A properly drafted confidentiality agreement can avoid the undesired—and often unintentional—forfeiture of valuable patent rights.


* 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.