Confidentiality Agreements: The Basics

December 1, 2017

Many of our clients’ business transactions start with a Confidentiality Agreement (“CDA”) or Non-disclosure Agreement (“NDA”), which for purposes of this article reference exactly the same thing. The primary purpose of these agreements is to establish the rules governing the treatment of either or both parties’ confidential information.

What is a Confidentiality Agreement?  A Confidentiality Agreement is a binding contract between two or more parties setting forth legally binding rules governing how a receiving party must treat a disclosing party’s Confidential Information.  There are two basic types of Confidentiality Agreements:

  • “One-way” or “Unilateral” agreements where only one party is disclosing Confidential Information, or
  • “Bilateral” or “Mutual” agreements where all parties are disclosers and receivers of Confidential Information.

Generally, the disclosing party is under no obligation to disclose any confidential information to the receiving party and normally limits disclosure to only that confidential information necessary to further the purpose of such disclosure (i.e., the stated purpose/project).  The receiving party’s obligations are (1) not to disclose the confidential except as expressly permitted by the Confidentiality Agreement, and (2) not to use the confidential information except for the express purpose stated in the Confidentiality Agreement.

Why do we use Confidentiality Agreements?  As a valuable asset of the disclosing party, the disclosing party has a vested interest in protecting its intellectual property, trade secrets, and other strategic non-public information.  Without the protection of a Confidentiality Agreement, merely discussing the disclosing party’s intellectual property, trade secrets, and other strategic non-public information is tantamount to giving it away.  Once made public or otherwise disclosed, in any form or medium, a party owning intellectual property, trade secrets, and other strategic non-public information loses its protection and the right to exclude others from using such information. Thus, Confidentiality Agreements are used to protect the disclosing party’s intellectual property, trade secrets, and other strategic non-public information so as to allow the free flow of information between the parties and facilitate work on a mutually beneficial goal or project.

In summary, if you are going to conduct any sort of discussions with a third party which might involve or require your disclosing any type of confidential information, you should have a Confidentiality Agreement in place prior to commencing any such discussions.

 

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