Confidentiality/Non-Disclosure Agreement FAQ - United States

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A Confidentiality Agreement protects confidential information during discussions, proposals, reviews, analysis and negotiations. The agreement allows the disclosing party to share valuable confidential information while retaining control over how the information is used by the receiving party. This type of agreement is useful when disclosing information to a potential purchaser, having an invention evaluated or when an employee will have access to or create confidential information during their employment.

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Contents

General Questions

What are the differences between the various confidentiality agreements?

The Potential Purchase/Transaction deals with the situation where one party is going to sell a business, part of a business, or assets and needs to disclose the financial books or other confidential information to potential purchasers. The Invention agreement protects an inventor where investors or some other person require access to confidential information in order to evaluate the invention. The Employee/Contractor agreement protects an Employer where a contractor or employee has access to confidential information belonging to the Employer. The Other Purpose agreement deals with any other general situation where one party will be providing confidential information and wants to be protected.

Why have a written contract?

Written confidentiality agreements provide documentation or evidence of the receiving party's understanding of the confidential nature of the information received. The receiving party's obligation to maintain the confidentiality of the confidential information is clearly expressed. A written contract allows the disclosing party to define crucial terms and more effectively control the way the information is used. Having the contract in writing is proof of what was agreed to and may help prevent misunderstandings later on.

Why am I asked to specify a location or jurisdiction?

Each State or Province/Territory may have its own set of laws. The selection you make is used to customize the document to your specific jurisdiction.

How long should I make the duties and obligations of confidentiality last following the termination of the agreement?

It is important to stipulate a term long enough to protect the interests of the disclosing party, while not unnecessarily burdening the receiving party. The length of time you should use depends on the nature of the confidential information and the nature of your particular circumstances. Remember that if you select a time period that is too long or too restrictive, a court may find the clause unenforceable.

What is the purpose of the non-competition clause?

This clause prevents the receiving party from starting or working for a company that will directly compete with you. This clause adds further protection to your confidential information and prevents the receiving party from using the information to your disadvantage. The restriction from competition can be in time or geographical location.

How long should I prevent the party receiving the information from competing?

It is important to prevent competition long enough to protect the interests of the disclosing party, while not unnecessarily burdening the receiving party. The length of time you should use depends on the nature of the confidential information and the nature of your particular circumstances. Remember that if you select a time period that is too long or too restrictive, a court may find the clause unenforceable.

What is the purpose of the non-solicitation clause?

This clause prevents the receiving party from recruiting any of your employees to work for them. In other words, this restriction prevents the receiving party from raiding your work force.

How long should I make the non-solicitation clause last for?

It is important to prevent solicitation of employees for a term long enough to protect the interests of the disclosing party, while not unnecessarily burdening the receiving party. In addition, you cannot unfairly restrict the employment of individual employees. The length of time you should use depends on the nature of the confidential information and the nature of your particular circumstances. Remember that if you select a time period that is too long or too restrictive, a court may find the clause unenforceable.

What is an injunction?

An injunction is a court order preventing a party from actually disclosing the confidential information. This remedy is often more beneficial than monetary damages because money alone may not fully offset the damage done by an unauthorized disclosure. It also avoids the difficulty of trying to measure all the damage caused by an unauthorized disclosure.

What is meant by "reasonable steps necessary" to retrieve lost or improperly disclosed information?

This means that the receiving party will take action that would be considered normal by a reasonable person in the same circumstances.

What additional clauses could I add?

While the Confidentiality Agreement that Law Depot provides is very comprehensive and provides sound protection, this option is available to allow you to further tailor the contract to your specific needs.

What information would be classified as confidential?

Confidential information would include all information that is provided by the Seller to the Purchaser that is not common knowledge or already in the public domain. This will NOT include the following:

  • Information that is already known in the industry;
  • Information that becomes publicly known through no fault of the Purchaser;
  • Information rightfully in the possession of the Purchaser before being received from the Seller;
  • Information created by the Purchaser through the Purchaser's own independent research. Information obtained in this way must be acquired without the direct or indirect use of confidential information already received from the Seller. This may include information developed from publicly available or industry sources;
  • Information obtained from a third party pertaining to the Seller's business where the third party may rightfully disclose the information. This may include information rightfully disclosed by a government agency or industry journal.


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Potential Purchase Transaction

How should I describe the name of the item to be purchased?

When describing the name of the item to be purchased, it is important to indicate the specific purpose that the Purchaser can use the confidential information for. If you want the confidential information to be used for a specific purpose, use specific wording. If you want to allow flexibility in the purpose that the confidential information is used for, then use more general wording. Describe the item with enough detail so as to clearly identify the item without including any of the confidential information regarding that item.

When can consent be withheld?

If the transaction that is the subject of this agreement is not completed, but confidential information was shared in the process, you may withhold your consent that would otherwise allow the Purchaser to be involved in a business that is in direct competition with your business. This wording prevents the Purchaser from using the confidential information to your disadvantage.


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Invention

Why is there no space to describe the invention in the contract?

The description of the invention is intentionally not mentioned in the contract to ensure that the contract is signed and the obligation of confidentiality is imposed on the Evaluator before any information about the invention is disclosed. Sometimes the mere description of the invention would allow someone else to steal your idea.


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Employee/Independent Contractor

How should I describe the position/responsibility of the Employee?

This description is important because it defines the purpose that the Employee will be able to use the confidential information for. If you want the confidential information used for a specific purpose use specific wording. If you want to allow flexibility in the purpose that the confidential information is used for use more general wording.

What is a bona-fide independent party?

A bona-fide independent party is a party that is not associated or affiliated with the Employee nor does the employee own or control that party in any way.

What does "not unreasonably withhold consent" mean in the non-competition clause?

This wording means that the Employer will not withhold its consent for an unjust, irrational or unreasonable reason.

When can consent be reasonably withheld?

Ultimately, this is a question that is decided by the courts. You would need to have a just and rationale reason for withholding your consent. This may include situations where you have a legitimate proprietary interest and by giving consent your interest would be compromised.


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Other Purpose

How should I describe the purpose for entering into the Confidentiality Agreement?

You should include a description of why you are disclosing the confidential information to the Recipient without disclosing details of the confidential information itself. This description is important because it defines the purpose that the Recipient can use the confidential information for. If you want the confidential information to be used for a very specific purpose then be specific in your wording. If you want to allow flexibility in the purpose that the confidential information is used for then use more general wording.

When can consent be reasonably withheld?

Ultimately, this is a question that is decided by the courts. You would need to have a just and rationale reason for withholding your consent. If the transaction contemplated by the agreement is not completed, but confidential information was shared in the process, you may be able to reasonably withhold your consent and prevent the Recipient from being involved in a business that is in direct competition with your business. This wording prevents the Recipient from using the confidential information to your disadvantage.


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