Understanding confidentiality agreements

Abstract

Confidentiality agreements, sometimes called secrecy or nondisclosure agreements, are contracts entered into by two or more parties in which some or all of the parties agree that certain types of information that pass from one party to the other or that are created by one of the parties will remain confidential. Such agreements are often used 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. Confidentiality agreements perform several functions. 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 nondisclosible 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 allinclusive 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 confiden-