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Top Secrets About Signing Confidentiality Agreements

Lerch Early Legal Update

If you own a growing business, you should develop a healthy respect, and disrespect, for confidentiality agreements.

Confidentiality agreements are the core of any program to protect a company’s proprietary information, such as its own unique processes, pricing, recipes, inventions, and customer lists. If you provide this information to an outsider without obligating him or her to keep it confidential, then you effectively concede that the information is in the public domain. You also lose legal rights to complain when that person, or an employee, or a competitor takes or uses the information as if it were his or her own.

At the same time, confidentiality agreements often are not worth the paper they are written on. Proving a violation of a confidentiality agreement is difficult. Although you want to protect your general non-public information, you will not want to initiate a lawsuit for a violation, unless the leaked information is extremely valuable. You should share confidential information only with a person or business that has signed a confidentiality agreement and whom you trust to follow it.

Seek the Assistance of Counsel

Confidentiality agreements are viewed as standard forms, but there is wide variation in their terms. To protect your own business information, you should have counsel develop a form that is standard for you, with provisions that protect the specific types of information you wish to protect in most cases. For example, an agreement favoring your business, if it is disclosing information, will try to protect even information that is disclosed orally or is not marked “Confidential;” it will prevent the information from being used other than for your specific joint project; and it will require the user to keep the information confidential until all copies of the information are returned to you or destroyed.

Proceed With Caution When Drafting Mutual or Two-Way Confidentiality Agreements

B2B businesses frequently are asked to sign confidentiality agreements as a condition to doing business with a teaming partner or a potential customer. Again, healthy respect and disrespect is in order. You should respect the fact that these forms can contain traps effectively restricting your business from competing in an otherwise appropriate business line, or exposing your business to potential claims for large “consequential” damages. “Mutual” or “Two-Way” confidentiality agreements that purport to protect both parties equally can be very unfair when only one party will actually be disclosing valuable information. In fact, “Two-Way” terms may inappropriately disadvantage one party over the other.

Experienced counsel typically should be able to review confidentiality forms for these types of traps in little time, and the review should not delay you from quickly starting work with your new customer. Often, a problem in a faxed or a PDF form can be fixed with a cross-out and initials allowing counsel to stand ready to say “all clear” without making any changes to the form. With the help of counsel, you and your customer can have your confidentiality agreement ready to start your business venture together in no time.

Ray Sherbill is a corporate attorney at Lerch, Early & Brewer who counsels businesses of all sizes in a variety of transactional, financial, employment, and tax-related matters, as well as the handling and resolution of complex disputes. For more information on confidentiality agreements, contact Ray at (301) 347-1275 or rjsherbill@lerchearly.com.

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This content is for your information only and is not intended to constitute legal advice. Please consult your attorney before acting on any information contained here.

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