What’s Confidentiality Between Friends?
In the late 19th century, Timothy Campbell, a U.S. Representative from New York, said to President Grover Cleveland, “What's the Constitution between friends?” in response to Cleveland's refusal to support a bill based on his belief that it was unconstitutional. I frequently encounter a similar sentiment when assisting clients in confidentiality agreement negotiations. Many times, confidentiality agreements are negotiated early in a transaction at a time when everyone is in the “honeymoon phase.” Everyone is working towards what is anticipated to be a mutually beneficial deal, and very often the possibility that conflict could arise in the future is not considered. For this reason, confidentiality agreements are either not considered or given little attention. However, as with all good planning, considering potential problems from the outset can allow you to avoid liability in the future should problems arise. In most cases during the honeymoon phase, you can use the good feelings of all parties involved to negotiate sensible and comprehensive confidentiality agreements that will protect both parties if conflict were to arise in the future.
Many companies have a standard confidentiality agreement that they use for a variety of purposes. While it may be appropriate to use a standard confidentiality agreement for a number of similar situations, there is no one-size-fits-all confidentiality agreement that will cover every transaction. These agreements should be specifically tailored to match not only the type of transaction involved, but also the nature of the confidential information.
The first consideration when negotiating a confidentiality agreement is whether both parties will be providing confidential information or whether one party will disclose the confidential information while the other party is purely a recipient of the confidential information. Determining which parties will be disclosing confidential information will be essential to how the confidentiality agreement is structured. If both parties are expected to provide the other with confidential information, in most cases, it makes sense to have an agreement where the rights and responsibilities of both parties are the same. In this case, both parties will have an interest in protecting their confidential information while at the same time negotiating an agreement that is not overly burdensome or punitive in the event confidential information is disclosed.
Negotiating a confidentiality agreement where only one person discloses confidential information and the other person is the recipient of that confidential information, is frequently more difficult. When only one party is expected to disclose confidential information, the disclosing party has a greater interest in protecting the confidential information and providing meaningful, and potentially more punitive, remedies in the event the confidential information is compromised. On the other hand, the receiving party has a greater interest in reducing the restrictions associated with confidentiality agreement and minimizing the penalties involved in violation of the agreement.
When negotiating a confidentiality agreement, you should always consider the mechanics involved in determining what information is covered by the agreement. Some confidentiality agreements provide that only information which is clearly marked as confidential is covered, while others provide that any information exchanged is automatically covered by the agreement. It is important to understand these mechanics before any information is exchanged so you do not accidentally disclose sensitive information that is not covered by your confidentiality agreement.
In addition, you should always consider the burdens of complying with the confidentiality agreement in light of the types of information to be provided. Frequently, confidentiality agreements require the parties receiving the confidential information to return all copies of the confidential information at the request of the disclosing party. In order to ensure compliance with this type of provision, the person receiving the confidential information must keep close tabs on what information was provided and who has control of the information. This task can be increasingly difficult in the event copies of the confidential information are made or electronic versions of the document are saved on various computers in your organization. Keep in mind that many confidentiality agreements also require the return or destruction of any notes or documents that are created that analyze the confidential information. Without careful procedures designed to keep track of the confidential information, it will be difficult to ensure compliance with the terms of this type of confidentiality agreement.
Finally, it is always a good idea to have confidentiality agreements with your employees and any service providers who may have access to your confidential information or the confidential information of another. You could be liable in the event your employee or a service provider that you have engaged discloses the confidential information of another, especially if the information is covered by a confidentiality agreement you have signed.
Author: Joe Leo