Q: I am a business owner, and my company shares sensitive business information both internally and externally. What do I need to do to protect my business from another party’s misuse of my company’s confidential information?
A: Companies often possess sensitive business information like trade secrets, business plans, proprietary works, customer information, pricing models, financial records, intellectual property information, personnel records, and technical specifications. Companies may share this information with employees, independent contractors, investors, buyers, or other service providers. Such parties could exploit, misappropriate, or improperly use such confidential information resulting in unfair competition, the solicitation of a Company’s employees or customers, financial losses, reputational harm, theft, diminution in brand value, loss of intellectual property rights, and more. Accordingly, a company should ensure that it has legal protections in place that will guard against the improper use of its confidential information.
Companies should not rely on informal or oral agreements when it comes to protecting confidential information. Nor should companies rely on template or form documents found online. Companies should seek legal counsel to draft bespoke, robust, and binding confidentiality agreements, sometimes called a Nondisclosure Agreement (“NDA”), to safeguard the confidential information.
A NDA may be unilateral or mutual. A unilateral NDA contemplates that one party (the “disclosing party”) is disclosing confidential information to the other party (the “receiving party”) and the receiving party agrees to keep the information confidential. A mutual NDA is used when both parties are disclosing confidential information, and both parties agree to keep the other party’s information confidential.
A well drafted NDA defines what the disclosing party considers to be “confidential”, restricts and sets expectations on the use of the confidential information, and has legal remedies and recourse if the receiving party breaches the NDA. The NDA should also include key provisions such as non-solicitation terms, requirements to return or destroy confidential information, permissible exceptions, and the duration of the non-disclosure obligations.
Careful consideration should be given to the protection of a company’s trade secrets. A company’s trade secrets may require protection that exceeds the term of the NDA. Accordingly, the NDA can carve out a longer time period for the protection of trade secrets.
A robust and binding confidentiality agreement can protect a business from unauthorized disclosures, misuses of confidential information, and other harm to the business. In addition, it can provide legal recourse for non-compliance with the provisions and terms of the confidentiality agreement. A well drafted NDA can give business owners confidence to engage in business relationships where disclosures of confidential information may be required.
Know the Law is a bi-weekly column sponsored by McLane Middleton. Questions and ideas for future columns should be emailed to knowthelaw@mclane.com. Know the Law provides general legal information, not legal advice. We recommend that you consult a lawyer for guidance specific to your particular situation.