How confidentiality agreements can protect your business
What are Confidentiality Agreements?
Confidentiality Agreements (also called Non-Disclosure Agreements) are, as their names suggest, agreements to protect the confidential information of a person or company from being disclosed.
When can they be used?
Two common examples of when Confidentiality Agreements are used include:
• the sale of a businesses to consider the viability of a purchase, potential purchasers and interested parties are likely to want details as to the business operations. This can include, for example, key information and other details that would otherwise be kept secret. To guard against the risk of others benefitting from this information, a confidentiality agreement should be signed at the outset of any discussions or negotiations.
• new product development if a business has developed a new product or service but requires outsourced resources to take it to market, it is likely that other companies with appropriate resources will need to be contacted. Before those companies can consider the proposal, they will need to have details of the product or service. Before these details are provided, a confidentiality agreement should be entered into.
The protection offered
A confidentiality agreement will provide some comfort and confidence that a disclosing party will not be taken advantage of. Without an agreement in place, it may not take long for someone who likes an idea or product to mention it to someone else and that information to get passed on again and again, with it potentially falling into the hands of competitors to use for their own advantage.
If there is a written confidentiality agreement in place, a breach of that will give rise to an entitlement to take legal action. For example, if it is believed that the other party is about to disclose secrets, it may be possible to obtain an injunction to prevent them from doing so.
The information protected
It will be obvious that the terms of a confidentiality agreement will only protect information which is confidential and secret; the agreement will not protect information which is already publicly known.
Limiting the risk
Once disclosed, sensitive information cannot be recalled. An award for damages is likely to be of little comfort or value and in any event, it is extremely difficult to show that the person to whom the information was disclosed has breached their obligations by disclosing it to others, or even used it for their own purposes or commercial gain.
In light of this, any disclosure of information should be carefully considered beforehand. The best protection is to disclose as little as possible while still enabling the other party to consider matters. For example, generally limiting the information given and concealing identities of key contacts and customers in the initial stages. It should also be borne in mind that certain information may not be disclosed without compliance with the Data Protection Act 1998. Other methods include only giving access to the information in certain places (such as in an office at the premises of professional advisers). Additional information may be disclosed as negotiations continue and having regard to their progress and the likely outcome.
Advantages and Disadvantages
As indicated above, whilst a confidentiality agreement can be put in place, it can be extremely difficult to police. Trying to enforce the provisions can be problematic given the requirement to produce appropriate evidence of any breach and/or actually becoming aware of a breach in the first place. It can also be difficult to show whether any gain has been achieved as a result.
However, it is certainly better to have something in place than not and shows that you consider confidentiality issues to be of extreme importance in your operations. An agreement acts as an extremely useful deterrent in respect of unauthorised disclosure of information, can protect your position in the event of dispute, is good risk management practice and can enhance your business image by showing you take things seriously.