How Do I Write a Confidentiality Agreement?

A confidentiality agreement, otherwise known as a non-disclosure agreement (NDA), sets out the terms on which parties will share confidential or otherwise commercially sensitive information. Typically, a confidentiality agreement will create obligations on the parties to protect the confidential information from unauthorised use or disclosure. A confidentiality agreement can be vital to protect your trade secrets, key financial information, sales and marketing strategies or just to keep your offers quiet during a negotiation period. This article will discuss the key things you should consider when preparing your confidentiality agreement. 

Defining Confidential Information

First and foremost, your confidentiality agreement must clearly state the information you want to protect. Your definition of confidential information should be broad enough to capture the commercially sensitive information you are planning on sharing and any information that may come up in the future. Some types of confidential information you may wish to cover include:

• technical information;
• inventions;
• patents;
• trade secrets;
• proprietary ideas;
• potential new products and services;
• research and development information;
• profits and margin information;
• marketing plans;
• customers and clients; and
• financial projections.

Your definition of confidential information should also set out whether the definition only includes written information. Alternatively, you may wish to include information you share verbally or by any other means. Additionally, you should consider whether you should specifically mark information you classify confidential to avoid confusion. 

Permitted Purpose

Typically, a party can use the confidential information it receives for a particular purpose. When drafting your confidentiality agreement, you should consider why you are sharing that information and what purpose the receiving party should be using that information for. Ideally, your permitted purpose should be sufficiently narrow that the receiving party can only use the confidential information for the specific project or transaction you are negotiating. Conversely, it should not be so restrictive that the receiving party cannot appropriately analyse the potential project or transaction. 

An example of a permitted purpose could be to enter into negotiations about a potential transaction. 

Confidentiality Obligations

You have set out what information is confidential and the purpose the receiving party can use it for. Additionally, you should specify what the receiving party must do to protect confidential information. Your confidentiality agreement should set out a general obligation to ensure any confidential information received is treated confidentially and protected from any unauthorised use or disclosure. You will also need to include an obligation on the receiving party to only use the information in accordance with the permitted purpose. 

Additionally, your confidentiality agreement should specify how long the confidentiality obligations will last. If you decide not to proceed with the transaction, note whether the confidentiality obligations cease or whether the receiving party must protect your information regardless. Approximately two or three years from the date of contract entry is sufficient for confidentiality obligations to apply. However, this may vary from industry to industry.

Purchasing Commitments

You do not want to forcibly finalise a transaction simply because parties exchange confidential information. Each party should be able to walk away from the discussions at any time. You also should not be under any obligation to share confidential information. 

Remedy for Breaching a Confidentiality Agreement

Your confidentiality agreement should explain any remedies available to the party who may suffer due to the other party breaching the agreement. In most cases, this will be monetary compensation or damages. However, in situations where the breach is continuing, it might be more appropriate to push for a court order, such as an injunction, to stop the other party from continuing to disclose the information. 

What Not To Include 

Assigning intellectual property rights between the parties is beyond the scope of a confidentiality agreement. Your confidentiality agreement should state you are not assigning intellectual property rights to the receiving party (if this is the case). If you are planning on developing intellectual property together and need to assign those rights between the parties, a confidentiality agreement is most likely unsuitable for your purposes. Here, where you are certain you will be working with the other party, you should consider a collaboration agreement or service agreement instead. 

Key Takeaways

Giving confidential information to someone can be a nerve-wracking experience. Unfortunately, failing to protect yourself can lead to long-term damage that is often hard to reverse. Confidentiality agreements are instrumental in such situations. Your confidentiality agreement should establish what information you are sharing, the purpose of sharing, what the other side can and cannot do with that information and what happens if something goes wrong. 

If you need help with confidentiality agreements, our experienced contract lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 1300 544 755 or visit our membership page.

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