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I am often asked by clients how to protect their ideas. The
best way, of course, is to keep them secret. Any sarcasm
aside, it is a sincere recommendation. Often people talk about
their ideas to brag, to brain storm, and to make themselves
feel as if they are adding to discussions. These are not good
reasons to disclose information you want kept confidential.
However, barring total secrecy, having a Confidentiality Agreement
can help protect your ideas.
Be Wise About When, How Much and to Whom You Disclose Confidential Information
When to Disclose Confidential Information
Disclose information in increasing amounts as the deal progresses.
Be sure that the balance of power in the deal remains even in terms of oral commitments, commitments through information
disclosure, money or contracts. The information disclosure
should start with general concepts and progress to detail
at the contract stage. Be sure to keep careful notes on what,
when and where information was disclosed and who else was
present at the meetings. These records can be extremely helpful
if you ever end up in court.
How Much Confidential Information to Disclose
Always disclose the minimum necessary to close the deal,
without being fraudulent or misleading. This allows you maintain
the most control over your product or idea, as well as protecting
your options for changing the timeline or details later if
needed. Once the deal is closed and the contract is signed,
both parties should be more committed to the process and protecting
information.
However, saying the minimum needed does not mean withholding
material information that substantially affects the deal.
For example, if your idea requires FDA approval, does not
have it, and no one brings this up, it would be wiser to disclose
this up front rather than to wait for this bomb to blow up
after the deal has progressed. If a party feels angry or mislead
then trust is broken, and, contract or not, it will be hard
to proceed productively.
To Whom to Disclose Confidential Information
Consider who you are talking to about your product or information.
Is the party a competitor who would greatly benefit from the
stealing the idea or product, a customer who will be helped
by the idea or product, or a partner whose own business would
be complemented by your success? The other party's interests
should always be kept in mind. Also, be aware of who at the
company you are dealing with.
Dealing with the CEO is entirely
different than dealing with a programmer or sales person.
Remember to also consider the employee's personal interests
in having the information. For example, the head of product
of development might think she would get a promotion if she
presented your idea to the company as her own for a new product
line.
Risks of Exchanging Confidential Information
Confidentiality agreements can help protect the parties both
receiving and disclosing information and are available as
legal forms by the author for purchase here.
Receiving Confidential Information
A surprising fact is that the party receiving information
is often taking a greater risk than the party disclosing information.
A good example of this risk is a movie studio. Script writers
are dismayed to discover that studios not only refuse to sign
a confidentiality agreement, but typically make the submitter
sign an agreement stating that if the studio later develops
something that looks like his or her idea, the submitter agrees
not to challenge this.
Consider the studio's perspective. Studios are in the business
of coming up with ideas and making them into movies. Every
time the studio receiving a script or a pitch, it is receiving
an idea.
If a studio were to agree to keep this information
confidential and that the submitter owned the idea, the studio
would be subjecting itself to potential law suits for every
idea submitted, even those already developed by employees
who have never seen or heard of the submission. In court,
the studio would have the burden of showing that despite the
receipt of the submission, its employees who developed the
similar idea never saw or received any information from the
submission.
This would be virtually impossible for the studio
to prove and costly when multiplied by the huge number of
submissions received. For studios, venture capitalists and
other groups that work with large numbers of ideas, it may
simply be too risky for them to sign a confidentiality agreement.
Remember that in these circumstances you are usually the less
powerful party and thus the other side forces you to assume
more risk.
Be sensitive to these considerations when you are disclosing
to a competitor, by signing the confidentiality agreement
you present, a competitor is risking a law suit from you even
if it already knows, or has in development, what you are about
to tell them.
Disclosing Confidential Information
For the disclosing party, the risks can also be great.
The disclosing party risks (a) disclosure of such information
to its competitors; (b) disclosure of the information to the
public; and/or (c) use of such information to compete or gain
market advantage against the disclosing party.
How Confidentiality Agreements Can Help
Legal Remedies Regarding Confidential Information
Confidentiality Agreements give a contractual legal remedy
for disclosure or misuse of information. Depending on the
information discussed, you may also have other legal remedies
available, such as under the trade secret or copyright law.
Trade secrets are ideas or information which the creator used
financial resources to create and made efforts to keep secret.
Trade secrets are protected by both state and federal laws.
If you have disclosed written information or source code,
copyright can often help if the other party's disclosure or
misuse involved making a copy of the information. These remedies
may be in addition to the contractual remedy in a Confidentiality
Agreement.
Use the Right Confidentiality Agreement for the Circumstances
It is important to use varying Confidentiality Agreements,
depending on whether you are the receiving or disclosing party. You can use free confidentiality agreements, a confidentiality agreement sample or a confidentiality agreement example, but you risk not having the right form for the right circumstances, the form not being up to date, etc.
A set of agreements for receipt, disclosure and mutual disclosure
of confidential information are available for purchase here
from the author.
Receiving Confidential Information
If you are the party receiving information, the following
clauses help restrict your company's future development as
little as possible:
- A narrow definition of "confidential information"
so that as little information as possible is covered by
the agreement
- Defining confidential information in the agreement or
as items labeled "confidential" in writing, so
that what information is covered by the agreement and what
is disclosed is more easily proven.
- Exceptions to the definition of "confidential information"
which include necessary disclosure to the government if
required (SEC filings, investigations, etc.); information
developed by your employees without reference to the disclosed
information; information already publicly known (it's posted
on the internet, has been already issued in a press release,
etc.), and others.
- A "residual knowledge" clause which states that
anything your employees remember in their heads, they can
use. This is based on the presumption that it is impossible
for people to entirely keep straight in their minds what
information came from where.
Disclosing Confidential Information
If you are the party disclosing information, the following
clauses help ensure the protection of your information:
- A broad definition of confidential information,
with no restrictions or exceptions.
- A clause stating to whom, when and how, disclosure and/or
use is permitted.
- A clause stating that the information must always be kept
confidential.
- Clauses regarding destruction of the information, return
of the information, legal remedies for disclosure, and others.
- No residual knowledge clause.
Conclusions Regarding Confidentiality Agreement and Confidential Information
If both parties understand the above issues well, a lot of
debate and unhappiness about the wording of Confidentiality
Agreements may ensue. This is the unfortunate nature of this
beast since how to get information back into Pandora's Box
has been plaguing man for many years. It serves both parties
well to be wise about how, what and to whom they disclose,
and to keep records of such disclosures.
If tough negotiations occur, try to consider how great the
risk really is. Would the costs of litigation be greater than
the value of the idea so that breach of the agreement is irrelevant?
Will the information be of any value in six months? Are lots
of other parties working on the same ideas so that six months
from now, there will be many ways to accomplish what the information
seeks to solve? Will the information be available from your
company or from other sources six months from now?
There are Confidentiality Agreements Form, free confidentiality agreements, Free samples of Confidentiality Agreements, confidentiality agreements bilateral, consulting confidentiality agreements, Free Confidentiality Agreement Form, Confidentiality Agreement Example, free legal forms confidentiality agreement and much more available all over the web, but you take substantial risk in using them.
Confidentiality Agreement legal forms are available for purchase
from the author here.
1 Readers are cautioned not to rely
on this article as legal advice as it is
no substitution for a consultation with an attorney in your
state. Based
on jurisdiction and time, the law varies and changes.
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