Do I need a confidentiality (also known as a non-disclosure) agreement?
The problem is, the effects of not protecting your discussions could be hugely detrimental to your business if the worst happens and your most valuable commercial secrets reach the wrong ears.
With that in mind, here are the key points you should consider when it comes to putting a confidentiality or non-disclosure agreement in place:
1. What is a confidentiality agreement?
A confidentiality agreement is a legal agreement that sets out exactly how you can share information or ideas in confidence with another party. Confidentiality agreements may also be known as non-disclosure agreements (NDAs) or confidential disclosure agreement (CDAs).
2. When is a confidentiality agreement required?
Never assume that any business conversation you have is in confidence.
If you have a new idea or your business has made an new development – whether for a new product, improved process or otherwise – that you need or want to share with another party (for investment, joint venture or any other commercial purpose) you should ensure that you enter into a confidentiality agreement in order to protect the information that you wish to disclose.
A confidentiality agreement may also be required where you have a close working relationship with your supply or distribution network – if you do not currently have a written contract in place with a third party, and you do not wish to enter into a full-form commercial contract, you may wish to enter into a confidentiality agreement to protect any commercial or financial information that is shared with that third party.
3. How can I keep my information confidential?
You should only ever disclose your confidential information when absolutely necessary.
Confidential information holds commercial value for you and your business, but it may only do so whilst it is confidential. Once information has been disclosed it can be exploited by others, which means it will not only cease to be confidential but is also unlikely to retain its value. Designs for prototypes, process improvements and lists of customers/suppliers are likely to be valuable pieces of confidential information for any manufacturing business.
4. What should a confidentiality agreement cover?
A confidentiality agreement should set out exactly why you’re disclosing your information and exactly what information you want to be covered. The agreement should also clearly state what you expect of the party you are disclosing your information to, for example:
What they are and are not permitted to do with the confidential information they receive
What they must do with the information if the agreement expires or is terminated
What they must do to keep your information and ideas secure
5. Are there different types of confidentiality agreement?
Yes. You can enter into a ‘mutual’ confidentiality agreement or a ‘one-way’ confidentiality agreement.
If both parties in the discussion intend to disclose confidential information, a mutual agreement that places obligations on both parties would probably be most appropriate.
However, if only one party intends to disclose information, a one-way agreement may be more appropriate. This would be suitable, for example, where one party has developed a new product and wishes to send the product (and any designs or specifications) to another party for testing or validation.
If you are not sure which agreement you need or if you’d like a more detailed review of an NDA you’ve been given by another party, please email me – I’d be happy to highlight any potential risk areas.
6. Can I disclose information at a meeting before the other party signs my confidentiality agreement?
You could – confidentiality agreements can apply retrospectively to capture information that has been disclosed previously. However, we would strongly advise against disclosing any ideas or information until the other party has entered a confidentiality agreement with you. There is no guarantee that the other will sign the agreement after information has been disclosed, and if they do not agree to do so, it would be very difficult to stop them from exploiting the information for their own purposes.
If you would like any help creating a confidentiality or non-disclosure agreement for your manufacturing business, please contact Tom Rook on 0114 252 7183 or email@example.com.