A confidentiality agreement is a legally binding contract to protect confidential or proprietary information shared between businesses or individuals. The parties agree to only use the confidential information for its intended purpose and implement safeguards for its handling and usage. It includes ensuring that information isn’t disclosed to unauthorized individuals.
Use a confidentiality agreement if you need a party to keep specific information disclosed for a certain period or as long as the relationship with that party lasts, whether as a business or between individuals.
What Is Confidential Information?
Confidential information refers to sensitive information intended to remain secret. It should not be disclosed to unauthorized individuals or entities. When one party (the disclosing party) shares confidential information with the other (the receiving party), they typically do so with a specific intention or common objective.
Confidential information can take various forms, such as verbal communication, written documents, observed processes, or electronically transmitted files.
Confidentiality vs. Privacy
Confidentiality refers to the duty not to disclose certain information without permission to third parties, often arising from a contract or business relationship. Privacy is the right to keep personal details out of the public eye, protected by law against unwarranted intrusion.
While both involve information, confidentiality deals with the obligation to protect it, while privacy concerns an individual’s right to control their access.
What Can Be Considered Confidential Information?
A confidentiality agreement can specify that various types of information are confidential, including the following:
- Business Strategies and Methods: Marketing plans, advertising strategies, product launch announcements, and other business information.
- Designs and Specifications: Blueprints, drawings, and documents for machines, buildings, products, inventions, and patent applications.
- Digital Assets: Source code, algorithms, proprietary software applications, and unique techniques or technical methods.
- Formulas: Chemical compositions and recipes for food and drink products (i.e., ingredients that give Coca-Cola its distinct taste).
- Physical Devices: Machines, objects, devices, and hardware configurations, as well as prototypes or samples.
- Processes: Manufacturing, chemical, and engineering processes.
- Vendor & Customer Lists: Contact lists of suppliers and customers, purchasing histories, pricing agreements, and customer preferences.
The disclosing party should clearly define and elaborate on the confidential information to align it with the agreement’s scope and purpose.
What Cannot Be Considered Confidential Information?
Instances in which information disclosed can’t be deemed confidential include:
- Public Knowledge: Information already in the public domain, like on the Internet (i.e., the location of Apple headquarters).
- Prior Knowledge: Information each party already knows before entering the confidentiality agreement (i.e., the knowledge of a researcher familiar with a gene-editing technique they studied during their PhD program).
- Independent Development: Information independently developed by each party (i.e., the development of an algorithm by a software developer without access to a company’s proprietary information).
- Permitted Disclosure: Information that a receiving party is allowed to disclose to certain third parties per the confidentiality agreement (i.e., they may be allowed to share the information with CPAs or attorneys).
- Compelled Disclosure: Information that the receiving party must disclose (i.e., a court order or government agency may require the disclosure of information so the receiving party can serve as a witness to a crime).
When Should I Use a Confidentiality Agreement?
If you and another individual or business wish to pursue a relationship that requires disclosing confidential information, you should use a confidentiality agreement. Consider creating this agreement if you engage with the following individuals or entities:
- Employees: New hires should sign an employee confidentiality agreement, agreeing to keep certain information private during employment and for some time after termination.
- Independent contractors: Prevent independent contractors from sharing sensitive information with competitors.
- Consulting firms: Ensure your internal information is safeguarded during and after an audit.
- Businesses: Protect your proprietary information when pursuing joint ventures, partnerships, mergers, and acquisitions.
- Interviewees: Protect the company information you share with a candidate during the interview process.
- Investors: To acquire funding and convince them of your worthiness, you may have to share your proprietary technology and financial projections with investors. Ensure this information remains secure during the evaluation process with a confidentiality agreement.
What to Include in a Confidentiality Agreement
A standard confidentiality agreement should include the following information:
- Receiving and Disclosing Party Information: If either party is a business, you’ll need to specify which type (LLC, corporation, etc.) and where it was formed, as well as include a representative’s name, title, and contact information.
- Confidential Information: Specify the types of confidential information the agreement protects, whether it’s trade secrets, patents, or other intellectual property.
- Non-Compete Clause: Decide whether to include a non-compete clause and specify when the non-compete period ends.
- Non-Solicitation Clause: Restrict the receiving party from hiring your employees for some time by including a non-solicitation clause.
- Term: Outline how long the agreement will last. This period is the length of the potential business arrangement.
- Duration: Define how long the recipient must maintain confidentiality after the agreement terminates.
- Jurisdiction: Decalre which state’s laws will govern the contract.
- Effective Date: Decide when the agreement becomes effective.
Confidentiality Agreement Sample
Download a free confidentiality agreement template below as a PDF or Word file:
Frequently Asked Questions
How do I ensure my confidentiality agreement is valid?
Each state may have different regulations for enforcing a confidentiality agreement. However, your confidentiality agreement will typically be legally binding and enforceable if the following statements are true:
- The receiving and disclosing parties sign and date the form.
- The confidential information that the agreement defines is unavailable to the public.
- The scope of the agreement is not overly broad.
- An item you define as confidential, such as a product design, cannot be developed or replicated easily without access to the designs.
Just because the document is valid doesn’t mean the other party will adhere to it. Understand what to do if someone breaches their confidentiality.
Can confidentiality agreements be indefinite?
Yes, confidentiality agreements can be indefinite. Even if the agreement has a definite term, the agreement can state that the receiving party’s obligations can be prolonged indefinitely.
However, most signatories to the agreement would prefer the document to expire at some point.
How long should a confidentiality agreement last?
A confidentiality agreement should last as long as you require the information to be confidential. Typical time frames are between one and five years, but they can be as long as needed.
The agreement should last an appropriate time to cover the disclosing party’s interests.
