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Important Elements

• Definition of Confidential Information: The most important part of the confidentiality agreement is the definition of Confidential Information. Ideally, the contract should set forth as specifically as possible the scope of information covered by the agreement. The disclosing party may be reluctant to describe the information in the contract, for fear that some of the confidential information might be revealed in the contract itself.
• Explanation of Purpose for Disclosure: Confidential information is only revealed to another party for a specific purpose. The agreement should set forth what the purpose is.
• Disclosure: Many confidentiality agreements do not have a disclosure provision. This provision states that in return for agreeing to keep the information confidential, the Recipient has the right to receive the information. Since this puts a duty on the Discloser to disclose its confidential information, the Discloser should carefully consider the scope of any such provision.
• No Disclosure: The Recipient must agree not to disclose the information to third parties. The extent of this provision to a large extent controls the "strength" of the non-disclosure agreement. Typical disclosure provision issues that may be faced in drafting and negotiating a confidentiality agreement include:
  • whether or not to include a "best efforts" clause,
  • whether to limit access of Recipient employees to a "need to know" basis, and
  • whether Recipient should merely agree to protect the confidential information in a manner similar to the way the Recipient protects its own confidential information.
• No Use: Some non-disclosure agreements forget this important element. The Discloser wants to make sure the Recipient does not use the information for any purpose other than that set forth in the agreement.
• Limits on Information Deemed Confidential: Practically every non-disclosure or confidentiality agreement puts some limits on the type of information that will be deemed confidential. For instance, if the Recipient already knew the information before it was revealed by the Discloser, or if the information was revealed to the Recipient by a third party, that information will not be treated as confidential under the agreement. Other possible limits include information that becomes publicly known, information that is requested by order of a government agency, or information that is independently developed. The Discloser may require a certain level of proof before such information is considered non-confidential.
• Term: The term provision of a confidentiality agreement can be extremely important. The term must be long enough to protect the interests of the Disclosing party. Nonetheless, the term should not unduly burden the Recipient. Example term provisions would have the agreement last one or five years. Alternatively, the agreement could last indefinitely, as is shown in the example contract.
• Other Provisions: Other provisions that are commonly found in confidentiality agreements include:
  • a provision allowing the remainder of an agreement to stay in effect even if a portion of the agreement is found to be unenforceable,
  • a provision stating that the agreement is binding on heirs and assigns,
  • a provision calling for a return of confidential materials after use by Recipient,
  • a provision stating that the Discloser has the right to receive an injunction from a court if the agreement is breached,
  • a provision specifically specifying that the Discloser owns all confidential information,
  • a provision specifying that disputes should be arbitrated, and
  • a provision governing the controlling law for the contract.

Confidential Disclosure Agreement

This Agreement is entered into this ___ day of ________, 20____ by and between ______________________ with offices at _____________________ (hereinafter "Recipient") and ______________________, with offices at _____________________ (hereinafter "Discloser").

WHEREAS Discloser possesses certain ideas and information relating to __________________ that is confidential and proprietary to Discloser (hereinafter "Confidential Information"); and

WHEREAS the Recipient is willing to receive disclosure of the Confidential Information pursuant to the terms of this Agreement for the purpose of _______________________;

NOW THEREFORE, in consideration for the mutual undertakings of the Discloser and the Recipient under this Agreement, the parties agree as follows:

1. Disclosure. Discloser agrees to disclose, and Receiver agrees to receive the Confidential Information.

2. Confidentiality.

2.1 No Use. Recipient agrees not to use the Confidential Information in any way, or to manufacture or test any product embodying Confidential Information, except for the purpose set forth above.

2.2 No Disclosure. Recipient agrees to use its best efforts to prevent and protect the Confidential Information, or any part thereof, from disclosure to any person other than Recipient's employees having a need for disclosure in connection with Recipient's authorized use of the Confidential Information.

2.3 Protection of Secrecy. Recipient agrees to take all steps reasonably necessary to protect the secrecy of the Confidential Information, and to prevent the Confidential Information from falling into the public domain or into the possession of unauthorized persons.

3. Limits on Confidential Information. Confidential Information shall not be deemed proprietary and the Recipient shall have no obligation with respect to such information where the information:

(a) was known to Recipient prior to receiving any of the Confidential Information from Discloser;

(b) has become publicly known through no wrongful act of Recipient;

(c) was received by Recipient without breach of this Agreement from a third party without restriction as to the use and disclosure of the information;

(d) was independently developed by Recipient without use of the Confidential Information; or

(e) was ordered to be publicly released by the requirement of a government agency.

4. Ownership of Confidential Information. Recipient agrees that all Confidential Information shall remain the property of Discloser, and that Discloser may use such Confidential Information for any purpose without obligation to Recipient. Nothing contained herein shall be construed as granting or implying any transfer of rights to Recipient in the Confidential Information, or any patents or other intellectual property protecting or relating to the Confidential Information.

5. Term and Termination. The obligations of this Agreement shall be continuing until the Confidential Information disclosed to Recipient is no longer confidential.

6. Survival of Rights and Obligations. This Agreement shall be binding upon, inure to the benefit of, and be enforceable by (a) Discloser, its successors, and assigns; and (b) Recipient, its successors and assigns.

IN WITNESS WHEREOF, the parties have executed this agreement effective as of the date first written above.