Those Peskly Contractual Exceptions to the Definition of Confidential Information: What to Do?
A confidentiality
agreement is one of the initial documents prepared in the course of two parties
doing business for the first time. These
types of agreements are integral tools to help facilitate a trusting
relationship between parties about to exchange proprietary information and
potentially enter into a binding contract—a foundation of trust benefits both
parties about to enter into such a contract.
“Disclosing” parties, those sharing their proprietary information, would
like an assurance that the party with whom they are sharing that information
will not misuse or disclose classified information to a third party. “Recipient” parties, those who will be
receiving information, would like to be confident that their decision to enter
into a contractual arrangement was based upon reliable communications with the other
party.
The
most important part of this agreement is the definition of “Confidential
Information.” This definition is the nuts
and bolts of the agreement and identifies the types of information that will be
considered confidential. A comprehensive
definition may include all information actually disclosed, whether before or
after the execution of the agreement, whether tangible or intangible, and will serve
to safeguard the disclosing parties’ claim to its proprietary interests. To avoid uncertainty, it is a best practice
for the disclosing party to mark all exchanges containing proprietary
information as privileged and confidential communications.
A party
confronted with another party’s “template” confidentiality agreement may be
confused and alarmed by a set of exceptions to what is considered Confidential
Information. These exceptions usually
immediately follow the definition of Confidential Information. This construction may lead you to think the
other party is trying to “pull a fast one” on you. Why would one party define what is
Confidential Information only to chip away at it in the same paragraph? It is because that party is being sneaky or
“smart” about your proprietary information?
Probably not, but be wary… Here’s
a list of those seemingly conflicting exceptions to the definition of
Confidential Information that are found in the typical confidentiality agreement
and the reasons why the other party is not really “pulling one over” on you:
|
The
Typical Exception |
Why It Makes
Sense |
|
Information that was
already in the possession of the recipient party as long as the recipient
party did not already have an obligation of confidentiality in regard to that
information. |
Even if the disclosing
party believes its information was truly confidential, it apparently did not
do such a good job protecting its information because it had already been
released to the recipient party. It is
unreasonable for the disclosing party to categorize as confidential any
information that the recipient party already had in its possession. |
|
Information of the
disclosing party that the recipient party obtained from another party that
did not have an obligation of confidentiality---even if that information
would be considered Confidential Information between the disclosing party and
the recipient. |
It would be unfair for a
disclosing party to be required to protect information if other parties have
open access to it. Disclosing parties
may wish to prevent potential abuse of this exclusion by adding a duty of due
inquiry on the recipient to the right of the third party to disclose the
information. |
|
Information developed
independently by the recipient party without use of the Confidential
Information |
If
information is developed by a party independently of another party who
believes that the information is confidential to them, it would be unfair of
that other party to try and later stake a claim on the information that had
been independently developed. |
|
Information that is or
subsequently becomes publicly available through no wrongful act of the
recipient |
If information is accessible
to the general public through various sources such as the Internet, that
information should not be considered confidential because such information is
potentially obtainable by anyone including the recipient. |
|
Information required to be
revealed by law |
A confidentiality agreement
cannot shield a recipient party from compliance with applicable laws. Even if information is considered
confidential, a recipient party cannot be prohibited as a matter of public
policy from disclosing relevant information to government agencies. |
Just
as in any other contract, there is an implied understanding of good faith and
fair dealing contained in a confidentiality agreement. There might be other things to be wary of in
another party’s confidentially agreement template, but the exceptions described
above are typical and routine. To be
truly “wary-free,” you should obtain or develop your own confidentially
agreement template. There are many
resources on the Internet, including the VMO Blog, where you can download these types of templates and
adapt them to your use.
Excellent article - I especially liked the explanations of each exception.
I take issue, however, with considering them as exceptions to being considered Confidential Information. Rather, I think they're exceptions to DISCLOSURE of confidential information. It's a fine line, but one that is quite important. To illustrate, let's consider the last exception (pursuant to legal process).
For contracts written that information disclosed pursuant to legal process is no now longer considered confidential information, the mere disclosure to the courts (or to the other party) makes such information immediately available to the recipient to disclose at will - even AFTER the legal process. The legal proceeding itself has converted that potentially confidential information into non-confidential information... and like with Pandora's Box, once opened, you can't put it all back in.
On the other hand, if you reformulate the language so as to make "pursuant to legal process" a disclosure exception, then the same effect is realized with respects to the legal process - the information is able to be disclosed to the other parties and to the court, effecting justice, so to speak. But after the legal process is over (and for any other purpose), the Confidential Information is still considered confidential and can't be disclosed further.
By-the-by, I also usually include the necessity for attempting to obtain a protective order for disclosure pursuant to a legal process - so as to try to keep a lid on things as much as possible and perhaps seal the record to continue to protect that Confidential Information.
Lastly, I want all of these to be disclosure exceptions because I don't want to have ever conceded the issue in writing in the event that my Confidential Information has somehow been leaked. If, for whatever reason, I have agreed that 'x' information is non-confidential with Party 1, and I give it to them... then even a disinterested Party 2 can use that disclosure of information (via exceptions # 2 or 4) to no longer have to keep that information confidential, either.
I talk about this in more detail on my site: http://www.licensinghandbook.com/2009/08/15/confidentiality-exclusions-versus-disclosures/
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