Covenants Not to Disclose

Covenants not to disclose are frequently used in conjunction with covenants not to compete and covenants not to solicit. (Please follow the links to read my previous blog entries on these topics). Typically, in a circumstance in which all three covenants are used together, there is an individual who is either a key employee hire, or a key employee leaving.

Unlike a covenant not to compete or a covenant not to solicit, a covenant not to disclose can be open-ended and remain in effect as long as the information remains confidential. In my prior posts, I have pointed out the fact that these other covenants must be limited in term to a certain number of years. A covenant not to disclose is the only true way to prevent others from competing with you; it denies others the opportunity to share confidential information and use it to compete against your business.

How is a Covenant Not to Disclose Used?

Still, covenants not to disclose may be used alone. For example, “nondisclosure agreements” (a type of covenant not to disclose) are used in certain circumstances in which a potential buyer is inspecting a business for sale. In this situation, confidential information of business is passed on to the potential buyer for the purpose of the inspection. This is crucial because companies do not want confidential information shared with competitors; the covenant not to disclose is an agreement which prevents such a thing from happening.

Trade secrets provide another example for the use of a covenant not to disclose. Trade secrets provide only partial protection of information. Under the law, this status (that of a trade secret) can only be conferred in certain circumstances. A covenant not to disclose can include a more substantial amount of information that is to be kept confidential, even if it cannot be treated as a trade secret.

Of course, in some circumstances, a company selling their business may also want to acquire a covenant not to solicit and a covenant not to compete from a potential buyer. However, when used in conjunction, the covenants not to compete and the covenants not to solicit are typically not as comprehensive.