Disclosure Agreement

Non-disclosure agreements should bind all parties who receive access to confidential information.

A disclosure agreement, usually referred to as a non-disclosure or confidentiality agreement, is an agreement that prevents one party from disclosing or improperly using confidential information provided by another. They are usually entered into in a business context -- a company may require an independent contractor, an employee or another company to enter into a non-disclosure agreement.

Scope of Protection

Confidential information can only be protected to the extent that particular information is defined in the agreement as "confidential." Consequently, the definition of "confidential information" must be drafted carefully. The disclosing party will probably prefer a broad definition, while the receiving party will probably prefer a narrow definition. Avoid overly ambiguous wording such as "any information of a proprietary nature," because this can leave dangerous loopholes. Be specific enough to plug potential loopholes but general enough to relieve you of the need to specifically list every piece of information you want to protect. Exclude information already in the public domain, such as patented designs.

Permitted Disclosure

The terms of disclosure between the parties should be specific. The disclosing party, for example, might be required to stamp every confidential document "confidential." The receiving party may be required to either return the information at the conclusion of the agreement or erase it from computer hard drives. If the recipient is a company, the agreement might require that any company employee receiving access to confidential information sign an individual confidentiality agreement.

Permitted Use

Many non-disclosure agreements specify that the recipient must distribute information to its own employees on a strict "need to know" basis. You might also specify that the recipient may not benefit from information other than as specified in the terms of the agreement: It cannot use a computer algorithm, for example, as a starting point to develop improved software technology, even if the final product does not violate your copyright.

Remedies

Courts may award three types of damages if the recipient breaches the agreement -- proportionate money damages, liquidated damages and injunctive relief. Proportionate money damages are awarded when it is easy to quantify how much damage the disclosing party suffered as a result of unauthorized disclosure by the recipient. Alternatively, you could insert a liquidated damages provision in the agreement that sets the amount of damages in advance. Courts enforce such provisions only if the amount is reasonable. Insert a provision stating that both parties agree that disclosure will do "irreparable harm" to the disclosing party. This will make it easier to persuade a court to issue an injunction against further disclosure. You should also require a recipient in breach of the agreement to pay all legal fees necessary to enforce the disclosing party's confidentiality rights.

References

• Iowa State University Extension: Overview of Confidentiality Agreements Read more: Confidentiality Agreement Drafts
• "JOM Journal: Understanding Confidentiality Agreements"; David V. Radack; 1994