Important And Confidentiality Clauses In Agreement

INTRODUCTION

A Confidentiality Agreement which is also known as a Non-Disclosure Agreement, in simple words, is an agreement between two parties where one of the parties is bound to not to disclose any kind of information being provided or shared by the other party to the first party. Non-Disclosure Agreements (NDAs) are agreements signed between two entities in writing that confidential information is being passed from one entity/person/company to another, the nature of the information, the purpose and most importantly an undertaking from the person receiving the information not to reveal it to anyone for a specified period of time. In India, there is no such statutory enactment for its applicability and its enforceability but it is governed under the Indian Contract Act, 1872.

  • A start-up company is seeking for funds through investors and capital ventures and the founders may fear that their idea will be stolen in lieu of receiving an investment. By entering into a Confidentiality agreement, one can prevent such idea theft.
  • In the absence of such an agreement, it would become difficult to establish in the future that whether the idea was stolen or not. Similarly, a company recruiting new employees may also require those individuals, who will have to get their hands on the sensitive information, to sign an NDA so that they do not disclose those details at any point.
  • Full-time employees may also be required to sign an NDA when working on new projects that haven’t yet been made public, as the effects of information leakage could damage the value of the project and the company as a whole[1].
  • When the NDAs with regard to employer-employee are concerned, there is no need for a separate confidentiality agreement as it can be included as a Clause in the employment agreement as well.

What Is Confidentiality Clauses In Agreement ?

In simple terms as well as the name suggests, confidentiality agreement means a legal agreement established with a sole purpose to confide or protect ideas or information which are unique and sensitive in nature, from being not disclosed to the public at large or to competitors. A confidentiality agreement is commonly used in a situation wherein an individual or a company has a secret information or process that it does not want to be revealed at any cost and if such information or process is out, it may cause considerable damage to business operations as well as to net-worth of an individual or a company.

A confidentiality agreement is a written document binding one or more parties entering into with an obligation to non-disclosure of any confidential information and discussions concerning the business to any third party. Having confidentiality agreements is a common and cliched method to begin any business relations. The party disclosing the confidential information is known as a ‘Disclosing Party’ and the party with whom such information is shared and which receives such information is known as a ‘Receiving Party’.

Uses of Confidentiality Agreement

  1. A confidentiality agreement can be helpful in today’s business growing world to any scale of business organization ranging from small start-up businesses to large corporations. These business organization may at any point of time for their business operations, be required to involve an outsider and share their confidential information. In such situations, developing such agreements proves to be of great aid.
  2. In the case of a start-up, such agreements are vital and should be kept at handy, as for any start-up to set the first step and flourish, dealing with outsiders becomes necessary for the purpose of pooling in some investments, collaboration, evaluation of any product or any other detail which is essential for them to set up their start-up. And it is always advisable to appoint a lawyer to discuss all the requirements and terms of the agreements before actually signing them.
  3. Confidentiality agreements have been proved to be of great help in the film and television industry wherein huge amount of confidential information is shared with multiple outsiders. For instance, actors are required to sign such agreements which prevents them from disclosing any scene, plot, details of their projects or any project undertaken by the producer or director which is not known to public yet. Same applies to fashion industry as well. Similarly, if any scrip writer wants his story to be made into a film, he needs to disclose the story to a producer or a film maker for the same. Therefore, in cases like such, creation of confidentiality agreement protects the originator of an idea.
  4. Similarly, such agreements are used at the time of job interviews or at the time of certain level recruiting where the employer of the organization is keen at keeping certain information secret which are confidential and private. Executing such agreements fulfill the purpose of the employer by preventing the candidates from disclosing such information shared at the time of recruiting them for the job.
  5. Confidentiality agreements play a substantial role in protecting the information and discussions which are ‘trade secret’ to a company. For instance, the recipe of coca cola is a ‘trade secret’ of the company and if such trade secret is revealed and out in public, company shall lose its value in market and suffer considerable losses as such ‘trade secret’ influences the market.

Important Clauses in a Confidentiality Agreement

Drafting is an essential stage of developing any relation in a strict legal sense, wherein all the discussions and negotiations between the parties are reduced down in clear and precise legal manner along with remedies made available to them in case of violation. There are certain clauses requiring thorough attention leaving no place for ambiguity:

  1. Definition Clause is the critical aspect of such agreements as it sets out clearly which information are to be treated as confidential and which not. This is the whole point beneath the execution of such agreements and the disclosing party/parties should carefully evaluate the clause and leave no room for ambiguities. Such clause also provides for exclusion of certain types of information from the definition (which are discussed in the exception point above).
  2. Parties should be clearly specified in the agreements as who shall be the disclosing and receiving party along with clear mention of any representative or third party who shall have the access of such confidential information and extent of right to disclose the same.
  3. Terms of confidentiality is a crucial factor and must be drafted with utmost care and caution as party/parties would not want their private and confidential information to be disclosed due to ambiguity in term clause. So, to avoid such situation to emerge the party/parties are required to clearly state a starting point during which the confidential information will be made and the time period during which confidentiality of information to be maintained. Both of these time period should be clearly mentioned in the agreements. Term can be of definite or indefinite period of time depending upon the industry and the information.
  4. Uses of confidential information should be clearly stated out as to for what purpose shall such information be used and when as well as name of any third party who shall use such information. Party/parties may also limit the use of such information as per their requirement.
  5. Legal disclosure clause states that in the event where the receiving is compelled to disclose the confidential information due to some government enquiry or an order from a court, such disclosure shall not amount to violation of the agreement. Party/parties may include an verbiage that in case of such disclosure, only necessary and sought information shall be disclosed and not beyond that.
  6. The agreement shall include a clause for return of the confidential information shared between the parties during the term of the agreement. The clause shall state the manner and when this is to be done. Due to information virtual storage of information such as cloud storage, drop boxes, thumb drives, etc., making it impossible to delete or erase such information, the receiving party shall be prevented from using such information during their course of business or at any time in future.

Conclusion

The whole and sole purpose beneath the execution of a confidentiality agreement is that the information, ideas, processes or any discussions which are valuable to an individual or a company and desires to keep them as a secret and prevent them from disclosing to public or any unwanted third party. As seen above, drafting of such agreements is a crucial factor as it lays out the entire manner in which what, why, how and when such confidential information is to be disclosed. Therefore, the parties should draft such agreements with utmost care and caution and avoid any unintentional disclosure of private information while dealing with an outsider.

REFERANCES

https://www.mondaq.com/turkey/trade-secrets/791504/the-importance-of-confidentiality-agreements

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