More often than not, a successful business starts with a good idea, and thrives on innovation, creativity, and originality. Unfortunately for those of you with great business ideas, not all organizations depend on their own ingenuity, and will exploit any opportunity to use information not legally protected for their own gain. Much of the time however, protecting the interests of your business in this regard is as simple as making sufficient use of legally binding contracts, such as confidentiality agreements.
Further, as a small business owner, your survival depends on being able to expand and build business relationships with other parties, without having to worry about the total loss of your information to competitors. Using confidentiality agreements in the appropriate way would allow you to do this while minimizing such issues.
A confidentiality agreement, also known as a non-disclosure agreement, is a legal contract between two or more parties, that outlines information, knowledge, or other material that the parties intend to share with each other, but wish to restrict the access to from third parties. As with any contract, its strength relies on how well it is drafted.
The most important part is the definition of “Confidential Information”. Ideally, the agreement should describe the scope of information that is to be deemed confidential as specifically as possible, without actually disclosing the information itself in the agreement. To do this you must first have a good understanding of exactly what information is sensitive to your company, and also which of that is relevant to the party you are contracting with. Only then would you be able to communicate the right information to your lawyer or business consultant for drafting. A badly written agreement would try to create a blanket clause that covers all information communicated between the parties, but not only would this be ineffective and impractical, but would most likely not be enforceable in court should it come to that.
It goes without saying that business owners with patents in need of protection can use confidentiality agreements to specify who may use their patents, and under what circumstances. That, however, is only one of many ways to make use of the shield the agreement offers. One of the important matters to clarify and define in the agreement is ownership of property (tangible or intangible). In any major business transaction, it is likely that several other documents may or may not touch upon the issue of ownership; nonetheless, for enforcement purposes it is important to have this matter clearly defined in a legal document that is agreed on by all parties involved at the start of the business transaction.
Another matter is whether the confidentiality agreement is the suitable type for the specific setting or relationship. A common scenario is when two companies are at the start of negotiating a business transaction. The agreement can be one-way, where only one business is sharing sensitive information and seeks to protect its interests; or it can be two-way where both parties have an interest in securing the information and material to be shared.
You may use the agreement to approach potential business partners who may or may not join your enterprise; buyers or suppliers that your company deals with on a regular basis with a need to receive sensitive information; consultants whom you contract for a certain amount of time who may need access to valuable information in order to perform their tasks; or another company looking to merge with your company or to buy your company – in this situation, they will most likely want to carefully inspect your company’s books and assets before they are bound to proceed with the deal.
Another common type of confidentiality agreement is one drawn up for employees. Current and former employees are responsible for most breaches of information secrecy. Although in some circumstances employees will have a legal duty to keep confidential your trade secrets, and not to use them in a manner that will harm your business, it is good to have this agreement in writing, and to be more specific about what is deemed confidential and its permissible manner of use. It is also important that the agreement with an employee provides for his duties of confidentiality after his employment with you ends.
As with any contractual agreement, a confidentiality agreement will also set out the monetary damages that can be recovered in the event that any of the terms are breached. The contract may cover equitable damages for loss of revenue, legal fees, and any other damages that the court may award. In some legal jurisdictions injunctive relief can be enforced, whereby the court can either prevent the party from disclosing the information beforehand, or prevent it from continuing to disclose the information. A note of reference on enforcement in Saudi Arabia: the court will generally allow direct and actual damages, but may not award damages for loss of chance, potential profits, and likewise may not award an injunction to a party seeking such relief.