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As a business owner, you may have confidential information that you and your business’ stakeholders should not share outside of the business. This can include information that has some commercial value to your business, such as:

  • financial statements;
  • internal processes;
  • client lists; or
  • trade secrets.

You should protect confidential information to maintain its value and to prevent competitors using it to your detriment. This article will explain how you can protect your business’ confidential information.

What is Confidential Information?

There are many types of information that can be confidential. These include:

  • ideas;
  • concepts;
  • designs;
  • text;
  • graphics;
  • technology; and
  • inventions.

Information can be confidential regardless of whether it is tangible, including ‘ideas’ and ‘concepts’. Some types of information require disclosure to the public in order to be protected by law, such as patents. You may also have privacy law obligations for information that you own, including employee and customer information.

Protection of Confidential Information

Non-Disclosure Agreement

A non-disclosure agreement (NDA) is an agreement between the owner of confidential information and a recipient of that confidential information. It is a contractual way of ensuring that the recipient handles the information correctly.

An NDA may be appropriate for discussions with other parties about potential projects and collaborations.

For example, you may reveal certain confidential information to pitch an idea, but you do not want the idea stolen. An NDA can help you protect this confidential information.

NDAs should contain a definition and a purpose. It should define the confidential information so that it is clear what the recipient cannot disclose. Your NDA should state that the recipient cannot disclose this information, whether in spoken discussions or through other means such as text, images or products.

Your NDA should also set a clear purpose for the disclosure of the information.

For example, your business may want to engage a manufacturer to create a new product. In discussions, you show the manufacturer the design. Whoever is receiving the information (the manufacturer) should sign your NDA before receiving the confidential information. It should state that the design is only being shown to discuss whether the manufacturer can assist with the production. Your NDA should also state that the manufacturer can only use the images of the design for the purpose of determining if they can assist, or for negotiating the terms of the manufacturing agreement.

Disclosing Confidential Information to Your Workers

Both employees and contractors may come into contact with confidential information. Your employment and contractor agreements should contain clauses stating that your employees and contractors cannot share the confidential information except in certain circumstances. The agreement should also specify that this applies both during and after the engagement. As a precaution, it is best to only reveal confidential information to people within the business who need to know the information.

Authorised Disclosure

Confidential information may be disclosed in an authorised manner as long as the recipient complies with any relevant NDA or contract. Your NDA should outline when and to whom the recipient may disclose confidential information.

For example, the NDA may provide that the recipient can disclose the information to their lawyer for review.

Your NDA should also state that any parties that the recipient discloses the information to must also comply with the NDA.

Unauthorised Disclosure

To enforce a breach of your NDA, it may be appropriate to communicate with the other party:

  • why you believe there is a breach of the NDA;
  • what damage you have suffered (for example, if a recipient discloses your trade secrets to your competitors, the damage you suffer may be a loss of sales); and
  • the resolution you propose (for example, destroying the confidential information).

Depending on the terms of the NDA, the party in breach may need to compensate you for any loss or harm you experienced as a result of the breach.

What If I Do Not Have an NDA?

If there is no contractual obligation or NDA to keep the information confidential, you may be able to rely on an equitable duty of confidence. In order to rely on an equitable duty of confidence, you need to demonstrate that in the circumstances, the recipient was not allowed to disclose the information to others. These circumstances arise as a result of your relationship with the recipient.

For example, you are an employer and the recipient of information is your employee. In those circumstances, the employee should understand that information they receive from you is confidential. This understanding arises as a result of the employer-employee relationship.

Similarly, if you are designing a product and, in discussions, you show designs for your product to a manufacturer. In those circumstances, the manufacturer should understand that they are not allowed to share those designs with anyone else. Again, this arises because of your relationship with the manufacturer.

An equitable duty of confidence arises in any situation where the relationship between the parties means the recipient should understand that information communicated to them is confidential. This is the case even if there is no contractual agreement. This could be in circumstances where your NDA is not valid, or because there is no NDA.

In order for you to rely on an equitable duty of confidence, you need to satisfy that:

  • the recipient was obliged to keep the information confidential;
  • the information needed to be private and was not something commonly known;
  • the breach (including use and disclosure of the information) was unauthorised; and
  • the disclosing party suffered loss as a result of the breach (for example, the party disclosing the confidential information suffered a loss of sales because the recipient revealed their trade secrets to their competitors).

Key Takeaways

As a business owner, you should always take the necessary steps to protect your business’ confidential information. A non-disclosure agreement (NDA) can protect the disclosure of this information. NDAs can apply to anyone that comes in contact with confidential information. Recipients should sign the NDA before you disclose confidential information to them. If there is a breach of the NDA, the party breaching the NDA may need to pay you compensation, depending on the NDA. If you have any questions about protecting your business’ confidential information, get in touch with LegalVision’s contract lawyers by calling 1300 544 755 or by filling out the form on this page.

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