The Increasing Use of Confidentiality Agreements and Clauses
Confidential information, or know-how, can be broadly defined as a form of intellectual property (IP) that meets the following criteria:
- Has commercial value
- Is not in the public domain
- Is reasonably protected
Confidentiality agreement and clauses nowadays are present in nearly all the contracts and have not only become pervasive but also an integral part of today’s contract administration and management. With the advent of new technologies and products that are being introduced in the market and companies globally competing with each other, the recent trend has seen a considerable increase in the use of trade secrets to protect the technology, formulas, customer lists, marketing plans, financial data etc.
All the secrets of the company are now being protected by signing a confidentiality agreement, or we can say non disclosure agreement, or usually companies incorporate a confidentiality clause in the agreement that they pen out to protect the rights and cover the risks of the information that is being shared. Such contracts are not only being signed by companies with one another but all the high tech companies ensure that their employees sign this agreement, thereby ensuring that the employee is also under the restriction of knowing the interests of the company and what needs to be shared, thus defining the boundaries for its employees.
Usually the confidentiality agreement consists of clauses including a comprehensive definition of confidential information and what information the company deems confidential, ownership of information, exclusions such as any information that is already in public domain, liability for related companies and advisers, governing law i.e. the laws under which the confidentiality agreement shall be governed by, arbitration in case of any dispute, liquidated damages clauses, termination clause which may extent to perpetuity unless terminated by notice by either party, etc.
The basic advantage of using confidentiality agreements is the restriction of the secrets of the company. All the departments of the company come under the umbrella of confidentiality, not just the sales department that deals directly with the retailers or the ultimate consumers, but also the finance department that needs to deal with various regulatory bodies, as well as the supply chain department that is constantly in touch with vendors. The flow of information from all the departments is happening on such a fast pace that the legal or the contract management department’s role in dealing with this increases day by day. As it is said “One man’s trash is another man’s treasure”, companies in this world are striving, competition is increasing day by day and sustaining and developing in this age of technology is getting riskier and costlier. Similarly companies need to set rules and standards before entering into any transaction with the outside world.
Trade secrets cannot be protected by Court unless the company had stated what information to treat as confidential. Thus now the companies, especially in a country like Pakistan, are increasing the use of such agreements and clauses in various other contracts to their maximum effect which may help them not only for a specific period but also to gain commercial advantage over their competitors over a longer period of time.
The views expressed in this article are those of the author and do not necessarily represent the views of any organization with which he might be associated.