All business have secrets that they feel are valuable or that give them advantage in the market. These secrets can be inventions, ideas, business processes, client/customer lists, recipes, or just about anything else that the company feels gives them an advantage. Companies are advised to hold on to their secrets as tightly as then can. However, in most businesses there comes a time when the realities of business require that some secrets be shared. Whether it be the hiring of an employee, the engagement of a contractor, a joint venture with a new partner, taking on a new investor, or shopping the business for sale. It is important that the business be able to share its confidential information with some assurance that it wont end up in the news paper or with a competitor.

Discussing secrets, it is wise to remember the words of Benjamin Franklin who once said: “Three may keep a secret, if two of them are dead.” I believe there is a lot of truth to this statement, the only way to truly keep a secret is to never tell anyone. However, if you must reveal your secrets, require your confidants to sign a well drafted confidentiality agreement.

What is a confidentiality Agreement?

Simply put, a confidentiality agreement is a contract with another party that requires them to keep your secrets confidential. A confidentiality agreement is often referred to as a non-disclosure agreement or NDA. They are used interchangeably.

What makes a good confidentiality agreement?

1) A well drafted confidentiality agreement will clearly and correctly identify the parties to the agreement. As the disclosing party, you need to make sure that all the parties receiving your confidential information are actually bound by the agreement.

2) The confidential information should be clearly and accurately described in the agreement or the agreement should have clear process for identifying the confidential information as the relationship proceeds.

3) If the confidentiality agreement calls for later identification of the confidential information, it is imperative that the disclosing party actually identify its confidential information as “confidential.”

4) The confidentiality agreement should identify the time period for the information to remain confidential. A confidentiality agreement may only limit the disclosure of information for a reasonable period of time, which will vary depending on the type of information disclosed.

5) The confidentiality agreement should be presented at the beginning of the business relationship, certainly, before any confidential information is disclosed. This helps to prevent any misunderstandings as to the expectations and may deter some unscrupulous actors from continuing forward with the business relationship.

A good confidentiality agreement is an important tool for business and serves as an important deterrent to the disclosure of your company’s confidential information. Failing to take precautions, like using a confidentiality agreement, could prove disastrous for your business.

If you have any questions about confidentiality agreements or would like to explore how they can be helpful for your business, please do not hesitate to contact our office.