Define: Confidentiality Agreement

Confidentiality Agreement
Confidentiality Agreement
Quick Summary of Confidentiality Agreement

A confidentiality agreement, also called nondisclosure agreement, is a contract entered into by two or more individuals, in which all parties agree that certain information is to remain confidential. The most important function of a confidentiality agreement is to protect sensitive commercial, technical, or scientific information. A confidentiality agreement is frequently utilized to protect trade secrets or any kind of proprietary data vital to sustained competitiveness. A constructive confidentiality agreement must define exactly what information can and cannot be disclosed. However, the depth and scope of a confidentiality agreement is virtually without limit. For any information deemed confidential by the proprietor may be entered into a confidentiality agreement. If the confidentiality agreement is violated and the information is revealed, the wronged party may pursue legal action and seek injunctive and monetary damages. A confidentiality agreement is common in employment law and is often interred onto by employers and employees.

What is the dictionary definition of Confidentiality Agreement?
Dictionary Definition of Confidentiality Agreement
An agreement designed to protect trade secrets and expertise from being misused by those who have learned of them.
Full Definition Of Confidentiality Agreement

Confidentiality Agreements are contracts used to protect trade secrets and know-how from being misused or misappropriated by those who have access to them. When they are used, they can help companies prevent competitors from learning valuable secrets. For many start-up and technology-based companies, the secrets these agreements help protect are among the most valuable properties they own. Often, those secrets constitute the essential difference between them and their competitors. Having written contracts that obligate employees to maintain the secrecy of a company’s techniques, processes, or know-how can mean the difference between maintaining a competitive advantage or giving it away to competitors.

In some cases, confidentiality agreements can even cover “negative know-how.” That is, they can prohibit the transfer of information about mistakes the company made while it perfected its technology or project, information many would not normally think of as secret or important. Restricting negative know-how, however, can help ensure that a company’s competitors will have the opportunity to make the same time-consuming mistakes the company made, and thereby delay the introduction of competitive products.

State laws generally permit companies to prevent others from using their secrets only as long as they treat the secrets as confidential and take reasonable precautions to prevent them from being disclosed to others. Depending upon the nature of the secrets, these necessary precautions might include restricting access to confidential data or setting aside a safe or room for the storage of secret documents.

In most cases, written confidentiality agreements should also be required from everyone who has access to company secrets. These agreements and the secrecy procedures enforced by a company create the legal basis for using the courts to prevent others from misappropriating important company information. The importance of these agreements and of complying with the company’s secrecy procedures should be impressed upon new employees and consultants. Departing employees should be reminded of their secrecy agreements. No one should be given access to a company secret before he signs a confidentiality agreement.

No venture capitalist wants to invest in a company that has not taken steps to protect its valuable secrets. Most will carefully review a company’s arrangements to protect its secrets. And most will expect management and other company employees to be bound by written confidentiality agreements. Many will engage local counsel to be sure the agreements are enforceable. Because of this and the fact that the state laws that govern the enforceability of these agreements vary widely and are quite specific in their requirements, care should be taken when drafting a confidentiality agreement. To be sure of its enforceability, it should be prepared or reviewed by experienced legal counsel.

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This site contains general legal information but does not constitute professional legal advice for your particular situation. Persuing this glossary does not create an attorney-client or legal adviser relationship. If you have specific questions, please consult a qualified attorney licensed in your jurisdiction.

This glossary post was last updated: 29th March, 2024.

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