Confidentiality Agreements: Do's and Don'ts

Many growing companies face challenges in gaining an advantage on their competitors or develop a new product that will forever change their industries. However, accomplishing these goals may require assistance from other parties, which may mean exposing ideas, business plans, patents, and perhaps trade secrets.

In these type of situations, a confidentiality agreement, or a nondisclosure agreement (NDA), must be created. It is a contract whereby one party agrees to disclose otherwise confidential information, while the other party agrees to not disclose any confidential information to others.

The following are guidelines you should follow before signing a confidentiality agreement:

  • Restrict the scope of your confidentiality agreement to the evaluation of disclosed materials. The contract shouldn’t establish business responsibilities between both parties nor allow the receiving party to utilize your confidential materials for their own interests.
  • Specifically establish the materials or information which need protecting. It’s important to understand that the receiving party will want to refrain from being limited in its own recent or future development efforts without being afraid of future court litigation due to the confidentiality agreement.
  • Determine how information will be verified as confidential upon provision to the receiving party. This includes how spoken communication about said information is covered.
  • Compensate the business should the receiving party disclose any or all confidential materials or information. It’s imperative to state how and where your company can recover their financial compensation if the contract is breached, since the confidential information is your business’ main asset.

The following is what you should not do before signing a confidentiality agreement:

  • Abide by oral agreements and believe they are valid. The parties are only obligated to follow what’s in writing.
  • Sign any agreement which assigns any of your company’s rights aside from the right to cover the confidential information.
  • Disclose more than necessary. The less that can be disclosed, the less that can be stolen from your company.
  • Agree to any stipulation which allows the receiving party to use your ideas or anything not marked “confidential” to be not protected by the confidentiality agreement.
  • Disclose any information to the receiving party before they sign the agreement.

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