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Confidentiality Agreements

One of the ways to protect new ideas and original creations is to rely on confidentiality. A confidentiality agreement, sometimes called a confidential disclosure or secrecy agreement, is a way to disclose secrets to someone else, without losing control over the secret information.

Secrets can be very important and valuable, like the secret formula for Coke®, or, the secret herbs and spices used by Kentucky Fried Chicken®. Whereas other forms of intellectual property protection, such as patents and industrial designs, have certain formal requirements which limit the scope of protection to specific types of things, secrets can be about anything at all. For example, a business or advertising scheme that does not qualify for patent protection, may still be commercially important and valuable. In this context, a secrecy agreement can preserve the commercial opportunity presented by the idea even though the idea may not be protectable by way of patents.

What Is the Essence of a Confidentiality Agreement?

The essence of a confidentiality agreement is that in exchange for telling someone your secret, you get them to agree in writing to keep your secret confidential. Most often confidentiality agreements also require that the person who has received the secret information will not use the information or obtain any benefit from the information without the written authorization of the person who told them the secret information in the first place. In this manner, the person who has told the secret information keeps control over it.

Of course, there are limits to confidentiality agreements. The fundamental principle of the agreement is that secret information is being disclosed. Therefore, if at a later date, it turns out that the information was not secret or it becomes public information, the obligation of confidence will not be enforceable. Therefore, such agreements typically exclude from confidentiality any information which turns out to be available to the public through no fault of the person who receives the secret information under the agreement.

Additionally, confidentiality agreements usually have a limited duration. Sometimes trade secrets, especially production knowhow, might be valuable for many years. However, most confidential disclosure agreements would be of three to ten years duration, depending upon the circumstances. In unusual cases, the confidentiality obligations might last longer.

Why Use a Confidentiality Agreement?

There are two reasons to use a written agreement. The first, is to impress upon the person receiving the secret information that their confidential obligation is a serious legal commitment which is covered by a written agreement. All too often, things disclosed in confidence in our daily lives are passed on without real concern of the implications. The second reason, is to form a record of exactly what confidential information was disclosed on what date and to whom. Therefore, most confidential disclosure agreements contain a schedule which should outline in detail the secret information that is being disclosed.

Signing Confidentiality Agreements

The signing steps for confidentiality agreements are slightly complicated. To be clear as to what is covered, it is usual to attach to the agreement a written schedule which details the specifics of the secret information. While it is fair to provide to the person who is receiving the secret information with a copy of the agreement, before they sign it, it would not be wise to disclose to them the secret information that will be attached to the agreement before they have agreed to keep it secret. Therefore, typically the agreement will be presented to the person who will be asked to sign it, and, only once they have agreed to sign it will the secret information then be disclosed. After the agreement is signed and the information is disclosed, the separated schedule which details the secret information can be initialled by both parties and attached to the agreement. In this way disclosure of the secret information does not take place until after the person receiving the information has agreed to be bound by the terms of the agreement.

What Else Should I Know about Confidentiality Agreements?

Often, disclosure is made of secret information for the purpose of advancing some tentative business discussions. For example, you may have an idea for a product, and want to disclose it to a person who may be able to make it for you, for the purpose of obtaining a price. You may wish to obtain prices from a number of different manufacturers simultaneously. However, once you have chosen the manufacturer, you may wish to recover from the unsuccessful bidders all the documents and other information related to your secret product. Therefore, it is a good idea to include in the confidentiality agreement the right for the person disclosing the secret information to ask for a return of all materials in all forms at any time.

Limits to Confidentiality Agreements

The fundamental limit to the confidentiality agreement is that it is only as good as long as the information is confidential. For some products, like Coca-Cola®, it is not possible to determine what ingredients are used in the secret formula by examining the end product. However, for most products, this is not case. If you have a new household article, once you begin to market the article, every feature of the article will undoubtedly become public information. Any obligation of confidence that may have existed prior to that date will no longer be valid, once the information becomes public. Therefore, confidentiality agreements or confidential disclosure agreements tend to be used by creators and inventors to provide short-term protection to them, to protect the commercial opportunities that they wish to pursue, while other rights, such as patent applications and design applications are filed. It is hoped that these applications will mature to actual protection by the time the secret is out.

If you are thinking of making a confidential disclosure to anyone else of secret information, you should consult your lawyer to obtain an appropriate form of confidentiality agreement.

James Nenniger is a founding partner of the firm of Piasetzki Nenniger Kvas LLP, Barristers & Solicitors, Patent and Trademark Agents, a firm that restricts its practice to patents, copyrights, trademarks, industrial designs and related causes. Piasetzki Nenniger Kvas LLP is located in Toronto, Canada.