‘Confidential information’ is a commonly used term in business, daily life and TV shows. But what does confidential information mean legally? Specifically, what does confidential information mean in a contract?

If you and another party are dealing with sensitive or secret information, you will likely need to consider how to protect it. 

For example, if you are entering into a contract with another party and the other party will get access to sensitive or confidential information belonging to your business, you should ensure that they cannot misuse or steal this information. 

This article explores:

  • what confidential information under a contract is;
  • where you might need a confidentiality agreement, NDA or confidentiality deed;
  • what you should include in a confidentiality agreement; and
  • how to define confidential information. 

What Is Confidentiality Under Contract?

A confidentiality agreement is an agreement between two parties that you enter into when you want to protect certain confidential information. A confidentiality agreement can also be referred to as a non-disclosure agreement (NDA) or a confidentiality deed. 

Confidentiality agreements can sometimes be a particular clause in a contract that outlines confidentiality obligations. 

For example, this clause could form part of an employment agreement, a distribution agreement or a license agreement.

When Might I Need a Confidentiality Agreement?

You may need to use a confidentiality agreement in a wide range of business or commercial settings, including:

  • during due diligence; 
  • during pre-contractual negotiations involving trade secrets (e.g. where a web developer shows confidential work in progress to a potential new client);
  • to protect an invention or idea; or
  • getting quotes for the production, supply or manufacturing of a new product.

What Should I Include in a Confidentiality Agreement?

A well-drafted confidentiality clause will protect your confidential information by clearly setting out exactly what information should remain confidential. Confidentiality agreements can also be useful for the person to whom you are disclosing the information because they clarify that person’s legal obligations. Key terms in a confidentiality agreement include:

  • the definition of confidential information;
  • restrictions relating to disclosure;
  • permissions relating to disclosure;
  • obligations to keep confidential information safe and secure;
  • the period that the information will remain confidential; and
  • arrangements for the return of confidential information upon termination of the relationship (if applicable).

How Do I Identify Confidential Information?

You should always clearly identify exactly what you consider to be confidential information in the confidentiality agreement. You could define the term ‘confidential information’ in a broad manner associated with all the contents of the disclosure or specify the kind of information the other party must keep confidential or secret.

The benefit of defining ‘confidential information’ broadly is that doing so covers any information that may be disclosed under confidential circumstances between parties. However, the downside is that a broad definition could lead to uncertainty. This could lead to the other party accidentally revealing information they did not realise was confidential. 

If the confidential information is quite specific, you should use a more restricted definition in the agreement. You should clearly specify the type or kind of information you will disclose. However, make sure that you avoid specifying the actual confidential information.

You should generally exclude information that:

  • is already available to the public;
  • was available to the party before entering into the NDA;
  • you received from a third party (i.e. information that is not within your control); and
  • is independently developed or discovered by the receiving party. 

If you are seeking to narrow the definition of confidential information, you could limit the definition to information disclosed in writing or marked as confidential. 

It is especially important to think about limitations if you are the disclosing party. This is because limiting the definition will help you avoid any potential accidental disclosures of confidential information.

Key Takeaways

Confidential information is a broad term that can encompass different kinds of information. A confidentiality agreement, NDA or confidentiality deed can be used to define confidential information in the context of your commercial relationship. 

You should ensure that your confidentiality agreement is drafted properly. You should include the: 

  • definition of confidential information;
  • obligations on each party to protect the information; and 
  • period that the information will remain confidential. 

Confidentiality agreements are useful documents for clarifying the rights and obligations of both you and the recipient of confidential information. If you need help drafting a confidentiality agreement, contact LegalVision’s contract lawyers on 1300 544 755 or fill out the form on this page.

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