Confidentiality Agreement

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A confidentiality agreement is also often called a nondisclosure agreement. This is a legally binding contract between an individual, often an employee, and a business in which the individual promises not to reveal trade secrets or disclose business information to others without appropriate authorization, and often within a certain time period after the employee has left the business. This type of agreement can be used in other circumstances, as well, in which two or more parties agree not to reveal specific information without approval or authorization.


Basics

State laws vary regarding confidentiality agreements, so it is important to look up your specific state’s information regarding these sensitive legal documents. Confidentiality agreements can often be either written or oral, but written documents will always provide better evidence in court.

Some states, particularly California, have laws that make enforcing confidentiality agreements difficult. Because of the tech boom centered in California in the last few decades, the state has passed laws that value an employee’s job mobility more highly than nondisclosure or confidentiality agreements. Some businesses attempted to use confidentiality agreements to prevent the former employee from seeking a position at another tech firm, because the skills the employee used at the business were considered part of the business’s innovation. California has ruled this an invalid use of confidentiality agreements, and your state may have similar provisions in their local laws.

How is a Confidentiality Agreement Used?

Confidentiality agreements are used most frequently by businesses to protect trade agreements, patent information, or other sensitive technical or commercial information from disclosure to others. The agreements also outline when or how this information may be obtained by others, as well as penalties for disclosing sensitive information to other parties, including law suits or monetary damages.

Confidentiality agreements are also used between businesses to avoid forfeiting valuable patent information through public disclosure once the patent has run out. The “public disclosure of an invention” such as a smart watch or vehicle can be seen as forfeiting patent rights to the innovation, but confidentiality agreements protect the patent while allowing the company to profit from using it.

These legally binding agreements also allow all parties to agree on and be informed regarding what information can be disclosed, and what information cannot be disclosed. By signing the confidentiality agreement, the parties agree that they understand the sensitive nature of some patents or trade agreements, and will not offer this information to other parties without following specific guidelines to obtain permission, also outlined in the confidentiality agreement.

Types of Confidentiality Agreements

There are generally two types of confidentiality agreements, which follow simple rules.

  • Unilateral confidentiality agreements are used when one party turns over information to another party, such as a government agency or potential investor, and the first party wishes to protect their rights to that information.
  • Mutual confidentiality agreements (also sometimes called Bilateral agreements) are legal contracts between both parties, or more than two parties, in which all parties agree to exchange some information with each other, and protect each other’s rights to the information.

Download our free confidentiality agreement form so you can get a good idea of the basic information needed to make this document legal. Check your local laws for any other specific sections you may need to add, and if you have complex questions, consider consulting an attorney.

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