If you have an idea for a new project, you will probably need to discuss this idea with other people and companies. These discussions are going to involve you disclosing confidential information about your project to the other parties. While it is crucial that you provide information so that they can make a valuable contribution to your ideas, you don’t want them to steal your ideas and compete with your project. The most common way to protect your confidential information is to enter into a non-disclosure agreement (NDA). This article will outline how you should structure your NDA to ensure that your information is protected.
What is Confidential Information?
When aiming to protect your information, you must ensure that you have clearly outlined which information is to remain confidential. You should define this within the NDA. To heighten the amount of protection you have, you should ensure that your definition is broad and encompasses a wide range of information. If it is too narrow, you run the risk of particular information not being confidential. Ideally, the definition should not just include written or tangible information, but also any information disclosed through:
- materials; and
You should also make sure that information will still be confidential even if you have not explicitly identified or labelled it as confidential.
What Information Can Be Excluded?
It is common for there to be some exclusions on what information can be considered confidential. However, you only should only accept exclusions to information when:
- it is or will become publicly available, except if it became publicly available because of a breach of confidentiality;
- the recipient independently developed it, without using your confidential information; and
- the recipient received it from a third party, provided that that third party did not breach their confidentiality obligations by disclosing it to the recipient.
The fewer exclusions you have, the less there is a chance that a recipient can rely on an exclusion to argue that the information was not confidential.
Within your NDA, you also need to define the purpose of disclosing the confidential information to the recipient. If your NDA doesn’t contain a purpose, the recipient might be able to use your information within their company to create products that compete with yours.
Therefore, you should describe this purpose in the most narrow way that you possibly can. This way, the recipient can only use the confidential information for that particular purpose. However, this is can difficult to balance. The purpose shouldn’t be too broad and vague, but it also shouldn’t be so restrictive that it prevents the recipient from being able to do anything with the confidential information.
In your NDA, you should outline instances where the recipient is allowed to disclose confidential information. The most common example of permitted disclosure is allowing the recipient to disclose confidential information to their:
- employees (possibly including contractors);
- directors; and
- professional advisors such as lawyers and accountants (particularly if the recipient is a potential investor).
While you can expect that the recipient will need to disclose your confidential information to these people, there should still be some boundaries within your NDA on this disclosure, including that:
- the recipient can only disclose your information to parties who have a need to know the confidential information. This need must be strictly in line with the purpose that you set out in the NDA;
- these parties must comply with the confidentiality obligations that you contained in the NDA; and
- the recipient is legally responsible if these parties breach their confidentiality obligations.
You should also permit disclosure if the recipient legally must provide confidential information. In these circumstances, you cannot prevent a recipient from disclosing confidential information where they have been legally required to. However, you can still set boundaries within the NDA around this disclosure to protect you. These boundaries should include that:
- the recipient must give you immediate notice if legal proceedings have required them to disclose your confidential information. This will allow you to try and prevent the disclosure by seeking a court order called an injunction; and
- if you’re unsuccessful in preventing the disclosure, you can require the recipient to disclose nothing more than the specific information that it has been legally required.
When starting a business, it is essential that you protect your ideas from being stolen. If you have to disclose confidential information, you should ensure that there is an appropriate NDA in place. This will govern how and when the information can be disclosed. However, when considering what to put in the NDA, you should ensure that:
- the definition of confidential information is broad;
- there are reasonable and appropriate exclusions to confidential information;
- there is a clear purpose; and
- the boundaries and conditions of permitted disclosure are set out.
If you would like a lawyer to draft an NDA or look over your existing NDA, contact LegalVision’s contract lawyers on 1300 544 755 or fill out the form on this page.
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