Keeping It Confidential...


In the wake of the recent 'Wikileaks' scandal, the damaging effects of unauthorised disclosure of confidential information is all too apparent. Furthermore, the current technological capacity for exchanging and storing information means that once confidential information has been released, it is impossible to make it secret again. Despite this, the commercial landscape dictates that valuable information is required to be exchanged on a regular basis and, as such, it is imperative that businesses ensure they have an effective system in place to safeguard the value of their information. The most routine method used in the United Kingdom is a confidentiality agreement, otherwise known as a nondisclosure agreement (NDA).

A NDA is a valuable mechanism used when parties are required to exchange confidential information for a number of purposes; whether that is during an acquisition process or tender, whilst collaborating on a joint research venture or for the purposes of a services or distribution agreement. While it is virtually impossible to eliminate the risk of an unauthorised disclosure entirely, a NDA can, at least, act to discourage disclosure and will provide legal protection in the event of an unauthorised disclosure. Without this contractual arrangement in place, the disclosing party relies on a number of common law rights which are unlikely to provide a reliable remedy should a breach of confidence occur. An effective NDA ought to cover all eventualities relevant to the specific transaction at hand. However some key points to consider in any NDA are:

General prohibition on disclosure of confidential information - The crux of a NDA is to include a general provision prohibiting the other party from disclosing any information defined as “confidential” to any other party except as permitted under the terms of the NDA.
Definition of confidential information - It is likely that confidential information will be given in written and electronic form and even provided orally (for instance at meetings) therefore it is important that the definition of confidential information is wide enough to cover all types of information to be disclosed. If confidential information is to be given orally it may be sensible to request that it be followed up in writing. This is for the benefit of both parties as it provides a record of discussions and hence the disclosures. In addition, sometimes the fact that negotiations are taking place between the parties themselves is considered confidential, in which case the disclosing party may wish to prevent statements being released to the press or industry bodies. Care should also be taken to ensure copies and extracts are limited to those strictly necessary for the relevant transaction.
Destruction of confidential information - On termination of a NDA for any reason, it is important to ensure that any confidential information held (in whatever form) is returned or destroyed (including removal of electronic records). Ideally this should also include any material which has been derived from your confidential information. A certificate of compliance should also be required to certify that all confidential information has duly been destroyed. This will ensure that a party does not hold on to any of your confidential information without the terms of a NDA governing it.
Permitted disclosee(s) - A NDA will sometimes stipulate a point of contact who will receive the information. Often third parties (e.g. professional advisors) will require access to this information and a system of permitted disclosure should be provided for. An obligation should be placed on the receiving party to ensure that the third party also complies with the terms of the NDA.
Exceptions - Parties can be forced to disclose information by a Court or other authorities such as the Financial Services Authority, and this possibility should be anticipated in the NDA. Further, parties should not be liable for the confidentiality of information that is already open to the public domain or that has legally been made known to them by a third party.
Term - Consideration ought to be given to how long information is required to be kept confidential. This is dependant upon the nature of information and a ‘duration’ clause ought to reflect this. Some information (such as financial information) may have a short lifespan whereas others (proprietary know-how and trade secrets) should be kept confidential for longer, if not indefinitely. If certain confidentiality provisions are to remain effective following the termination of the agreement, this should be provided for.

Finally, like any contractual arrangement, the provisions of an NDA must be both proportionate and reasonable.

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