How to Bullet-Proof Your Confidentiality Agreement

Nina L. Kaufman, Esq.

Nina L. Kaufman, Esq.

Nina L. Kaufman, Esq., owner of Ask The Business Lawyer, is an award-winning business attorney, speaker, and Entrepreneur Magazine online contributor. She saves consulting and professional services companies time, money, and aggravation by serving as their outsourced legal counsel.

Posted on August 28, 2011 in IP & Social Media

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I received a query from “Cee” about using confidentiality agreements:

Q.: I have every person i deal with sign confidentiality. but i have found that it does not really protect you because unless you are willing to pour tons of money into a lawsuit, and most small people dont have tons of money, then what can you do?

The first question I have for Cee is what’s IN your agreement? Most confidentiality agreements that I see downloaded from the Internet (where many entrepreneurs get their legal advice) have more holes than Swiss cheese. They may be 1-pagers that simply say “we acknowledge that we’re sharing information and agree not to disclose it.”

That’s not enough! A good confidentiality agreement contains a lot more, such as:

  • Identifying the specific information that will be considered confidential
  • Detailing the actions OTHER THAN mere disclosure that will be considered a violation — such as doing an end run around you and “doing the deal” with someone else (called “non-circumvention”)
  • Limiting the number or identity of people within the company who have a right to know the information
  • Imposing confidentiality requirements on third parties (such as subcontractors)
  • Providing TEETH in the agreement!!! (Can you hear my frustration?).

One of the fatal flaws of most canned confidentiality agreements is that they don’t spell out what happens if the other side divulges the information. (Acchhh — if I had a nickel for every lousy confidentiality agreement I’ve seen . . . .). That’s where entrepreneurs and small business owners lead the fox right into the proverbial hen house. There need to be penalties for bad behavior (improperly disclosing information). Such as the right to bring an expedited lawsuit (called “injunctive relief”), the right to have your attorneys’ fees paid if found in your favor, the right to bring the lawsuit in your local courthouse (“jurisdiction and venue”). All of these things can make it v-e-r-y unpleasant for a party — especially one overseas — who has the inclination to pirate your valuable intellectual property

Confidentiality agreements can’t necessarily prevent the need to bring a lawsuit to enforce them. But, if properly worded, they can make the process swifter (and less expensive); plus, a clearer case of infringement with a well-written agreement might make your case a more tempting one for an attorney to take on a contingency fee basis (in which case, you don’t have to front the legal fees).

Final words: especially if you are negotiating with an overseas company, do your due diligence!! Find out if the company is reputable. Learn about the customs of doing business (just how informal is it?). Is there a culture of pirating?

To those who say, “I can’t afford the due diligence,” I ask, “can you afford not to do it?

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