Businesses, whether small or large, rely on working with teams of people to develop new products, develop a strategy for the business, participate in mergers and purchases, and collaborate on many activities that include people from other companies. For any of these activities to be successful, it usually means information must be shared to facilitate the activity.
Without some protection, for example, a confidentiality statement, company strategic information, and competitive information may slip away to the competition. Anytime competitive information is obtained by the competition, your company is placed at a disadvantage, and all of your hard work may be lost. Products, marketing plans, merger information, etc., can be jeopardized, leading to financial losses that could affect the business in a significant way.
In this post, we will explore more details about confidentiality statements, why you need them, when you should use them, how to write one and disclaimers.
What Is a Confidentiality Statement?
Today’s business activities are based on networking, meetings, negotiations, and discussions aimed at improving the business and increasing its success in the business environment. Often sensitive information must be shared to facilitate the conversation to reach agreements.
Without a confidentiality statement, there is no restriction on either party to keep this information private. Competitors are eager to obtain any information that would assist them competitively.
A confidentiality statement requires the parties (individuals and companies) to follow specified responsibilities regarding the protection of confidential information shared between them to conduct business between two or more parties. The confidentiality statement is a legally binding document requiring the parties not to share information. These agreements are used between two companies, between an employee and company, or between a contractor and a company to ensure that trade secrets and competitive information remain private.
Confidentiality statements are also referred to as confidentiality agreements and non-disclosure agreements. There are additional terms that are less commonly used, such as proprietary information agreements, secrecy agreements, and non-disclosure forms.
When to use a confidentiality statement?
There are multiple reasons to consider using a confidentiality statement.
- Retention of competitive advantage
- Clarify the responsibilities of each party
- Information handling requirements
- Protection of patent rights
- Protection of merger plans and information
- Provide legal backup
Retention of competitive advantage – the intent is to control competitive information so that it does not fall into the hands of media, the public, and specifically the company’s competitors.
Clarify the responsibilities of each party – each party has a responsibility to protect private information and how it can be used.
Information handling requirements – verification that each party has sufficient standards and processes in place to protect the information exchanged. Documents must be protected within both entities physically and electronically to prevent accidental sharing of information.
Protection of patent rights – patent rights are incredibly valuable; however, if the information becomes public, patent rights are usually forfeit along with the competitive advantage and potential profits.
Protection of merger plans and information – a great deal of information is shared between companies to assist in the evaluation of whether the merger should proceed, whether it makes sense for both companies, and to provide a valuation of the merger. This information must be protected.
Provide legal backup – agreements of confidentiality are legal documents. They can be used in legal proceedings to support the merger, joint partnership, etc. they are often brought into the limelight if the agreement is somehow compromised.
Confidentiality Statement (Templates & Examples)
Essential Elements of a Confidentiality Statement
The more clarity you can bring to a confidentiality statement, the easier it is for everyone to understand and follow. Confidentiality statements can be complex legal documents; however, using simple, straightforward language also helps in understanding and adherence to the intent of the agreement. The following are some of the basic areas which should be covered in these agreements:
- What is confidential
- Who is involved
- Why the information is shared
- What are the exclusions or limitations?
- What are the obligations of the parties?
- How long will the agreement be enforced?
- Discloser obligations
- Injunctive clauses
What is confidential – define what is considered confidential, not to be shared outside of the team members or outside of the company. Be as specific as you can; reference particular documents as an example. Cover verbal disclosures as well as documents that cannot be shared.
Who is involved – include who is involved. Disclosure of information may be restricted to the entire company or specific individuals within the company. For example, a team assessing a merger will be included along with senior executives the team reports to and decision-makers regarding the merger.
Why the information is shared – indicate why the information is shared and for what purpose.
What are the exclusions or limitations? – information in public knowledge or known before the agreement or acquired from third parties is usually excluded from the agreement.
What are the obligations of the parties? – to use the information of the reason it is being shared, to keep the information confidential, restrictions on where the recipient can work once the project is completed for a specified period, and who will own the intellectual data developed as a result of sharing information.
How long will the agreement be enforced? – depends on the nature of the project or agreement. Often a confidentiality agreement expires at the end of a project or a specified time when the information is no longer valuable. E.g., 2- 5 years. In situations where property rights, patent rights, and copyrights are involved, the agreement may last much longer.
Discloser obligations – although not always included, it clarifies that the discloser must consider the agreement obligations before disclosing any information.
Injunctive clauses – if the discloser feels that a breach may occur, the discloser has the right to take the other party to the court before a breach occurs by invoking an injunction or a court order.
How to Write
There are a variety of reasons for needing a confidentiality statement. There is basic information that is needed in every agreement, and you can start by collecting the information and discussing the details of what is needed in the agreement. The agreement is a contract between two parties stating how secret or competitive information is to be treated and kept private from outside parties.
Begin with a summary of the relationship
- Use a standard contract format
- Assess which kind of confidentiality agreement will be used
- Identify the parties involved in the agreement, the provider of the information, and the receiver of the information
- List the information that is to be kept confidential
Next, define the terms of the agreement
- Define the requirements of the recipient of the confidential information. Define how the information can be used and any limitations. Define how the information will be protected and kept confidential.
- Define the period that the agreement can be enforced. Specify the beginning date and the parameters that will determine the end date. Even if the project activity ends, the confidentiality may remain in place for a defined period after the end date.
- Define the penalties associated with a breach of the contract, or the penalty may be defined by an arbitrator or follow a court hearing. Highly sensitive information leaked to the public and/or the competition would carry stronger penalties. If you cannot agree on the penalty, the court must decide.
- Add miscellaneous conditions as needed to fit the situation.
- Leave space for all parties to add their signatures. Everyone must sign before the agreement becomes valid and any information is shared.
Types of Confidentiality Statements
Many different confidentiality statements are covering every situation between two parties, whether they are individuals or companies. Although they are different, they should include the basics outlined in the preceding paragraphs.
Some examples of confidentiality statements include:
- Board and Committee Members
- Non Workforce Members
- Access to an Online Registry
- Therapy Observation
- Consulting Project
- Mergers and Acquisition
- Joint Projects Between Several Companies
- Patient Medical Information
- Student and Volunteer Information
The most common type of confidentiality statement is where one party will not share the information held by another party. It is often used when hiring a consultant or an employee to protect the company’s information.
The second type of statement is mutual. Both parties agree to keep confidential information held by each company confidential. It is mutual or bi-lateral
What is Confidentiality Disclaimer?
Confidentiality disclaimers are added to the agreement to protect the sender of the confidential information. An example of a disclaimer is when the sender includes a statement requesting anyone who has accidentally received the information to inform the sender and destroy all paper and electronic copies of the information.
There are many types of confidentiality statements used by individuals and companies to protect sensitive information that is being shared. Once signed, the participants agree to keep all information private and to put in place standards and procedures to protect the information.
A confidentiality agreement is not valid until all parties have signed the agreement. It is considered a legal agreement and enforceable in a court of law. Confidentiality statements are also referred to as confidentiality agreements and non-disclosure agreements.
There are one-way, mutual, and bilateral agreements that many firms use to protect their information when they are hiring consultants, employees, conducting joint projects with other companies, and sharing information for mergers and acquisitions.