How To Protect Your Crown Jewels With A Confidentiality Agreement

by: Martin Truman

How should you use a confidentiality agreement to protect your trade secrets and how effective are they anyway?

Many commercial clients still regard a Confidentiality Agreement or Non-disclosure agreement (NDA) as routine documents that do not require detailed consideration or legal advice. Are you one of them?

They are all the same aren't they?

I must have seen and reviewed several hundred Non-disclosure Agreements in my 11 years in commercial practice. NDAs vary from a half page statement through to a comprehensive 8-10 page document. Usually a two to three pager, or possibly a concisely drafted and formatted one page document, will meet most needs. 80-90% of the clauses will be the same in all agreements and can be scanned quickly when you know what you are looking for; but the 10-20% unique clauses are the ones to watch out for. It is usually these that have the potential to catch you out.

What type of information? For what purpose is it being disclosed. How sensitive is the information? What is the upside? What is the downside? What is the shelf-life of the confidential information? What practical methods are there of securing the confidential nature of the information? Can the obligation be enforced on employees, advisers, holding companies or subsidiaries?

Who bothers suing for breach of an Confidentiality Agreement? Aren’t they just symbolic?

There is a widely held belief (which I have some sympathy for) is that the mere presentation of an NDA at the outset of a relationship is more important than the signature itself. Asking the other party to sign an Confidentiality Agreement is a good to way to set the mindset of the recipient. Often this has the desired effect of putting the recipient on notice and reinforcing the duty of care that is then owed to keep the information confidential.

The usual remedy for unauthorised disclosure is an injunction preventing the recipient from disclosing the confidential information. Admittedly the costs of obtaining an injunction may outweigh the benefit of securing one. Once the information is in the public domain it is difficult to persuade a judge to grant an injunction. The remedy then is damages.

I've got better things to spend my time on than negotiating or obtaining a written agreement?

To a practised eye a review of a draft Confidentiality Agreement needn’t take that long. A good commercial lawyer should be able to identify the 10-20% and advise of any tweaks that may be required. If your bargaining power is weak, you will at least sign with knowledge of the consequences.