THIS CONFIDENTIALITY AGREEMENT (the "Agreement”) is entered into on this ____day of ___________ by and between _________________, located at ___________________ ( the” Disclosing Party”), and ___________________________ with and address at ______________________ (the “Recipient” or the “Receiving Party”).
The Recipient hereto desires to participate in discussions regarding ________________________ (the “Transaction”). During these discussions, Disclosing Party may share certain proprietary information with the Recipient. Therefore, in consideration of the mutual promises and covenants contained in this Agreement, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows:
1. Definition of Confidential Information.
(a) For purposes of this Agreement, “Confidential Information” means any data of information that is proprietary to the Disclosing Party and not generally known to the public, whether in tangible or intangible form, whenever and however disclosed, including, but not limited to:
(i) any marketing strategies, plans, financial information, or projections, operations, sales estimates, business plans and performance results relating to the past, present or future business activities of such party, its affiliates, subsidiaries and affiliated companies;
(ii) plans for products or services, and customer or supplier lists;
(iii) any scientific or technical information, invention, design, process, procedure, formula, improvement, technology or method;
(iv) any concepts, reports, data, know-how, works-in-progress, designs, development tools, specifications, computer software, source code, object code, flow charts, databases, inventions, information and trade secrets; and (v) any other information that should reasonably be recognized as confidential information of the Disclosing Party. Confidential Information need not be novel, unique, patentable, copyrightable or constitute a trade secret in order to be designated Confidential Information.
The Receiving Party acknowledges that the Confidential Information is proprietary to the Disclosing Party, has been developed and obtained through great efforts by the Disclosing Party and that Disclosing Party regards all of its Confidential Information as trade secrets.
(b) Notwithstanding anything in the foregoing to the contrary, Confidential Information shall not include information which:
(i) was known by the Receiving Party prior to receiving the Confidential Information from the Disclosing Party;
(ii) becomes rightfully known to the Receiving Party from a third-party source not known (after diligent inquiry) by the Receiving Party to be under an obligation to Disclosing Party to maintain confidentiality;
(iii) is or becomes publicly available through no fault of or failure to act by the Receiving Party in breach of this Agreement;
(iv) is required to be disclosed in a judicial or administrative proceeding, or is otherwise requested or required to be disclosed by law or regulation, although the requirements of paragraph 4 hereof shall apply prior to any disclosure being made; and
(v) is or has been independently developed by employees, consultants or agents of the Receiving Party without violation of the terms of this Agreement or reference or access to any Confidential Information.
2. Disclosure of Confidential Information.
From time to time, the Disclosing Party may disclose Confidential Information to the Receiving Party. The Receiving Party will:
(a) limit disclosure of any Confidential Information to its directors, officers, employees, agents or representatives (collectively “Representatives”) who have a need to know such Confidential Information in connection with the current or contemplated business relationship between the parties to which this Agreement relates, and only for that purpose;
(b) advise its Representatives of the proprietary nature of the Confidential Information and of the obligations set forth in this Agreement and require such Representatives to keep the Confidential Information confidential;
(c) shall keep all Confidential Information strictly confidential by using a reasonable degree of care, but not less than the degree of care used by it in safeguarding its own confidential information; and
(d) not disclose any Confidential Information received by it to any third parties (except as otherwise provided for herein). Each party shall be responsible for any breach of this Agreement by any of their respective Representatives.
3. Use of Confidential Information.
The Receiving Party agrees to use the Confidential Information solely in connection with the current or contemplated business relationship between the parties and not for any purpose other than as authorized by this Agreement without the prior written consent of an authorized representative of the Disclosing Party. No other right or license, whether expressed or implied, in the Confidential Information is granted to the Receiving Party hereunder. Title to the Confidential Information will remain solely in the Disclosing Party. All use of Confidential Information by the Receiving Party shall be for the benefit of the Disclosing Party and any modifications and improvements thereof by the Receiving Party shall be the sole property of the Disclosing Party. Nothing contained herein is intended to modify the parties' existing agreement that their discussions in furtherance of a potential business relationship are governed by Federal Rule of Evidence 408.
4. Compelled Disclosure of Confidential Information.
Notwithstanding anything in the foregoing to the contrary, the Receiving Party may disclose Confidential Information pursuant to any governmental, judicial, or administrative order, subpoena, discovery request, regulatory request or similar method, provided that the Receiving Party promptly notifies, to the extent practicable, the Disclosing Party in writing of such demand for disclosure so that the Disclosing Party, at its sole expense, may seek to make such disclosure subject to a protective order or other appropriate remedy to preserve the confidentiality of the Confidential Information; provided in the case of a broad regulatory request with respect to the Receiving Party’s business (not targeted at Disclosing Party), the Receiving Party may promptly comply with such request provided the Receiving Party give (if permitted by such regulator) the Disclosing Party prompt notice of such disclosure. The Receiving Party agrees that it shall not oppose and shall cooperate with efforts by, to the extent practicable, the Disclosing Party with respect to any such request for a protective order or other relief. Notwithstanding the foregoing, if the Disclosing Party is unable to obtain or does not seek a protective order and the Receiving Party is legally requested or required to disclose such Confidential Information, disclosure of such Confidential Information may be made without liability.
This Agreement shall remain in effect for a two-year term (subject to a one year extension if the parties are still discussing and considering the Transaction at the end of the second year). Notwithstanding the foregoing, the parties’ duty to hold in confidence Confidential Information that was disclosed during term shall remain in effect indefinitely.
Both parties acknowledge that the Confidential Information to be disclosed hereunder is of a unique and valuable character, and that the unauthorized dissemination of the Confidential Information would destroy or diminish the value of such information. The damages to Disclosing Party that would result from the unauthorized dissemination of the Confidential Information would be impossible to calculate. Therefore, both parties hereby agree that the Disclosing Party shall be entitled to injunctive relief preventing the dissemination of any Confidential Information in violation of the terms hereof. Such injunctive relief shall be in addition to any other remedies available hereunder, whether at law or in equity. Disclosing Party shall be entitled to recover its costs and fees, including reasonable attorneys’ fees, incurred in obtaining any such relief. Further, in the event of litigation relating to this Agreement, the prevailing party shall be entitled to recover its reasonable attorney’s fees and expenses.
7. Return of Confidential Information.
Receiving Party shall immediately return and redeliver to the other all tangible material embodying the Confidential Information provided hereunder and all notes, summaries, memoranda, drawings, manuals, records, excerpts or derivative information deriving there from and all other documents or materials (“Notes”) (and all copies of any of the foregoing, including “copies” that have been converted to computerized media in the form of image, data or word processing files either manually or by image capture) based on or including any Confidential Information, in whatever form of storage or retrieval, upon the earlier of (i) the completion or termination of the dealings between the parties contemplated hereunder; (ii) the termination of this Agreement; or (iii) at such time as the Disclosing Party may so request; provided however that the Receiving Party may retain such of its documents as is necessary to enable it to comply with its document retention policies. Alternatively, the Receiving Party, with the written consent of the Disclosing Party may (or in the case of Notes, at the Receiving Party’s option) immediately destroy any of the foregoing embodying Confidential Information (or the reasonably nonrecoverable data erasure of computerized data) and, upon request, certify in writing such destruction by an authorized officer of the Receiving Party supervising the destruction).
8. Notice of Breach.
Receiving Party shall notify the Disclosing Party immediately upon discovery of any unauthorized use or disclosure of Confidential Information by Receiving Party or its Representatives, or any other breach of this Agreement by Receiving Party or its Representatives, and will cooperate with efforts by the Disclosing Party to help the Disclosing Party regain possession of Confidential Information and prevent its further unauthorized use.
9. No Binding Agreement for Transaction.
The parties agree that neither party will be under any legal obligation of any kind whatsoever with respect to a Transaction by virtue of this Agreement, except for the matters specifically agreed to herein. The parties further acknowledge and agree that they each reserve the right, in their sole and absolute discretion, to reject any and all proposals and to terminate discussions and negotiations with respect to a Transaction at any time. This Agreement does not create a joint venture or partnership between the parties. If a Transaction goes forward, the non-disclosure provisions of any applicable transaction documents entered into between the parties (or their respective affiliates) for the Transaction shall supersede this Agreement. In the event such provision is not provided for in said transaction documents, this Agreement shall control.
Each party warrants that it has the right to make the disclosures under this Agreement. NO WARRANTIES ARE MADE BY EITHER PARTY UNDER THIS AGREEMENT WHATSOEVER. The parties acknowledge that although they shall each endeavor to include in the Confidential Information all information that they each believe relevant for the purpose of the evaluation of a Transaction, the parties understand that no representation or warranty as to the accuracy or completeness of the Confidential Information is being made by either party as the Disclosing Party. Further, neither party is under any obligation under this Agreement to disclose any Confidential Information it chooses not to disclose. Neither Party hereto shall have any liability to the other party or to the other party’s Representatives resulting from any use of the Confidential Information except with respect to disclosure of such Confidential Information in violation of this Agreement.
(a) This Agreement constitutes the entire understanding between the parties and supersedes any and all prior or contemporaneous understandings and agreements, whether oral or written, between the parties, with respect to the subject matter hereof. This Agreement can only be modified by a written amendment signed by the party against whom enforcement of such modification is sought.
(b) The validity, construction and performance of this Agreement shall be governed and construed in accordance with the laws of _____________________ (state) applicable to contracts made and to be wholly performed within such state, without giving effect to any conflict of laws provisions thereof. The Federal and state courts located in _______________ (state) shall have sole and exclusive jurisdiction over any disputes arising under the terms of this Agreement.
(c) Any failure by either party to enforce the other party’s strict performance of any provision of this Agreement will not constitute a waiver of its right to subsequently enforce such provision or any other provision of this Agreement.
(d) Although the restrictions contained in this Agreement are considered by the parties to be reasonable for the purpose of protecting the Confidential Information, if any such restriction is found by a court of competent jurisdiction to be unenforceable, such provision will be modified, rewritten or interpreted to include as much of its nature and scope as will render it enforceable. If it cannot be so modified, rewritten or interpreted to be enforceable in any respect, it will not be given effect, and the remainder of the Agreement will be enforced as if such provision was not included.
(e) Any notices or communications required or permitted to be given hereunder may be delivered by hand, deposited with a nationally recognized overnight carrier, electronic-mail, or mailed by certified mail, return receipt requested, postage prepaid, in each case, to the address of the other party first indicated above (or such other addressee as may be furnished by a party in accordance with this paragraph). All such notices or communications shall be deemed to have been given and received
(i) in the case of personal delivery or electronic-mail, on the date of such delivery,
(ii) in the case of delivery by a nationally recognized overnight carrier, on the third business day following dispatch and
(iii) in the case of mailing, on the seventh business day following such mailing.
(f) This Agreement is personal in nature, and neither party may directly or indirectly assign or transfer it by operation of law or otherwise without the prior written consent of the other party, which consent will not be unreasonably withheld. All obligations contained in this Agreement shall extend to and be binding upon the parties to this Agreement and their respective successors, assigns and designees.
(g) The receipt of Confidential Information pursuant to this Agreement will not prevent or in any way limit either party from:
(i) developing, making or marketing products or services that are or may be competitive with the products or services of the other; or
(ii) providing products or services to others who compete with the other.
(h) Paragraph headings used in this Agreement are for reference only and shall not be used or relied upon in the interpretation of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written.
This form has been prepared for general informational purposes only. It does not constitute legal advice, advertising, a solicitation, or tax advice. Transmission of this form and the information contained herein is not intended to create, and receipt thereof does not constitute formation of, an attorney-client relationship. You should not rely upon this document or information for any purpose without seeking legal advice from an appropriately licensed attorney, including without limitation to review and provide advice on the terms of this form, the appropriate approvals required in connection with the transactions contemplated by this form, and any securities law and other legal issues contemplated by this form or the transactions contemplated by this form.
Confidentiality Agreement: What Is It?
A confidentiality agreement, also called a non-disclosure agreement, confidentiality statement, confidentiality clause, or NDA, is a contract between two people, usually an employee and an employer, that ensures the employee is going to keep certain information about the company confidential. Both parties understand that the information being protected is sensitive, technical, or not for the public and is valuable for commercial or other purposes.
Types of Confidentiality Agreements
- Standard Agreement: A standard non-disclosure agreement is a simple agreement that anyone can use if they want to protect their important information in a business or any other situation.
- Inventor Agreement: This type of agreement is used by inventors to protect their unpatented inventions. If you find yourself in a situation where you need to discuss an invention with an interested party, it's important that you make sure the third party will not use or give away any of the information you discuss in the meeting.
- Employee Agreement: This type of confidentiality agreement ensures that an employee does not discuss certain business information outside of work. This is a very common way for employers to make sure that they protect their valuable or sensitive information.
- Interview Agreement: This sort of confidentiality agreement might be signed if someone is going for a job interview and it's necessary for the company to reveal some sensitive information. In order to protect that information, they'll have the interviewee sign a non-disclosure agreement.
- Unilateral Non-Disclosure Agreement : This type of agreement states that one party agrees not to disclose certain information of the other. Most confidentiality agreements are unilateral.
- Mutual Non-Disclosure Agreement: This type of agreement states that both parties will not share the other's information. These are usually used when two businesses share protected information with each other.
When Do I Need a Confidentiality Agreement?
There are many situations where you may want to have or where you may be asked to sign a confidentiality agreement .
- If you are a business and you want to make sure that the information you are sharing with a person or organization won't be shared anywhere outside the places outlined in the agreement.
- If you are a consultant or vendor who has been given access to information that belongs to a person or organization and you want to make clear the terms under which information is allowed to be shared.
- If you have a trade secret that you are trying to protect. Trade secrets are only given protection by the law if the owner of the secret takes measures to keep it a secret and the secret gives the owner an upper hand in the marketplace.
- If you are presenting your invention or business idea to a potential partner, investor, or distributor.
- If you are a business that is sharing financial, marketing, and other information with a prospective buyer of your business.
When You Can't Use a Confidentiality Agreement
There are certain types of information that are not covered by a confidentiality clause.
- If the person signing the agreement already has previous knowledge of the information you are trying to protect, then it is not protected.
- Any information that is common knowledge, or available to the public in any way, cannot be covered in an NDA.
- If the information can be used in a court order, it might not be protected in the confidentiality agreement.
What Should a Non-Disclosure Agreement Include?
The contents of a confidentiality agreement are straightforward, but should be specific and clear to both parties.
- Identification of the Parties: This section should clearly state the parties involved in the agreement. It should explain who the discloser is (the person giving the information) and who the recipient is (the person who will receive the confidential information).
Definition of Confidential Information:
This section should be as specific as possible about what information is to be kept confidential. Simply stating that you cannot discuss any of the "business practices" will make it difficult to prove if it has later been breached. Types of confidential information include:
- Private information about the company
- Trade secrets
- Classified government information
- Unpublished patent applications
- Financial information
- Marketing materials
- Business practices and/or strategies
- Vendor contacts
- Customer contacts
- Prototypes or samples
- Drawings, designs, documents
- Software created by the discloser
- Hardware configurations designed by the discloser
- Inventions created by the discloser
- Explanation of Purpose for Disclosure: Confidential information is only revealed to another person or organization for a specific reason. This section of the agreement should explain exactly why you are sharing this information with the other party.
No Disclosure/Obligations of Receiving Party:
The recipient of the information must agree that they will not disclose the information to any third parties. This is the most important section of the non-disclosure agreement. Typical disclosure issues that may be addressed in this section of the confidentiality agreement include:
- Whether or not to include a "best efforts" clause, meaning that as long as the employee makes their best effort to keep it confidential, that effort is sufficient.
- Whether to limit access to information given to the recipient to a "need to know" basis.
- Whether the recipient should simply agree to protect the confidential information in the same way that they would protect their own private information.
- No Use: This section is often forgotten, but it can be very important. This section ensures that the person receiving the information does not use it for any other purpose than what it is intended for. The intention should be clearly set out in the explanation of purpose section
- Exclusions of Confidential Information : This section will put limits on what kind of information is seen as confidential. This would be necessary if the recipient already knew some of the information before it was given to them by the discloser or if it was given to the recipient by a third party. Other possible limits could be information that has become known to the public or information that is requested by a government agency.
- Term/Time Periods: This clearly states how long the confidentiality agreement will be in effect. Without this section, the contract is invalid. The term should be long enough to protect the interests of the disclosing party without placing an undue burden the recipient of the information. It could last as little as one year or it could be indefinite. It could also be set based on a certain future event.
- Waiver. This section, also known as a non-waiver, explains that a failure to exercise any right given in the agreement does not waive any previous or future rights.
Other sections that are often used in non-disclosure agreements are:
- A section called severability, which allows the rest of the agreement to remain valid, even if one portion of it becomes invalid.
- A section stating that the agreement includes heirs and family who may become aware of the confidential information.
- A section that explains the location or jurisdiction where the agreement applies.
- A section that asks for confidential materials to be returned after use.
- A section that explains that the discloser of the information has the right to take the recipient to court if they breach the agreement.
- A section that specifically states that all confidential information is owned by the discloser.
- A section that explains the laws that protect this contract.
- A section that clearly states that nothing contained in the agreement will constitute either party a partner, joint venturer, or employee of the other party.
Things to Look for Before You Sign a Confidentiality Agreement
- The scope: It's important to understand what type of information you will need to keep confidential, what steps will need to take to keep it confidential, and how long you will need to keep the information confidential.
- Broad language : Be wary of language that doesn't specifically and clearly state what is expected of you. Make sure you understand exactly what you are agreeing to so that you avoid any liability later.
- Liquidated damages: A liquidated damages section means that if you breach the agreement, the company or individual will be entitled to a certain amount of damages without actually having to prove that you caused damage to them or their business. You do not want to sign an NDA that has a liquidated damages clause.
- The consequences of breaching the contract: Check that there are not any unusually harsh or unfair punishments if you breach the agreement.
- Negotiate: You can always ask to change the document in certain places if you don't agree with something in it.
Frequently Asked Questions
- When are confidentiality agreements signed?
Confidentiality agreements are usually signed once you are hired. In some cases, you may be asked to sign a confidentiality agreement before an interview in case sensitive information is discussed.
- Should I have a lawyer read my NDA before signing it?
These contracts are legally binding and if you feel you need a second opinion or you do not understand exactly what you are being asked to do, having a lawyer read over the contract is a good decision.
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