What Are Confidentiality Agreements?

Definition

A confidentiality agreement, also known as a non-disclosure agreement, is a legal agreement between at least two parties that stipulates that specific confidential material that can be shared only with the agreeing parties and none outside. There are two forms of a confidentiality agreement: a unilateral agreement is a one-way share of information from one party, and the other party must keep it secret, and in a bilateral agreement both parties supply confidential information, such as during a merger.

Uses

A confidentiality agreement can be used in several different situations. A common usage is for strategic business meetings where sensitive information may be shared between companies but not be accessible to a competitor or the general public. The agreement creates a confidential partnership to guard trade secrets or proprietary information. Often when individuals are exposed to sensitive information through work, they are required to sign a confidentiality agreement as both a legal guard for the company they work for and a way to impress upon them the need for secrecy. Whether the agreement is between two companies or an individual employee and employer, a confidentiality agreement makes any potential legal issues much easier to deal with.

Pertinent Cases

One well-known confidentially agreement court case was RRK Holding Company v. Sears, Roebuck & Co, decided on May 27th, 2008. RRK had entered into a confidentiality agreement with Sears in 1997 when RRK agreed to produce a next generation spiral saw under Sears store brand, Craftsman, and sold exclusively in Sears stores. The two companies signed a confidentiality agreement that prohibited the disclosure of the prototype concept. When negotiations eventually failed and the two companies parted ways, Sears manufactured a similar product two weeks before RRK, and with a lower price. In court, Sears argues that the product designs fell within the general knowledge of the industry and was not a trade secret. A jury found that the product was innovative and that Sears had breached the confidentiality agreement, and Sears was hit with a $25 million judgement.

Consequences of Violation

For employees who breaches a confidentiality agreement with their employers, their jobs could be terminated immediately even with an employment contract, and that is just the start. An employer can sue and if successful, obtain monetary damages from the employee. In some cases, the employee can be charged with criminal activity (by the government, but instigated by the employer) for intellectual property theft or other similar crimes. Outside the law, a fired employee may have trouble finding another job in the same field if it is a specialized and close-knit industry.

That being said, sometimes a confidentiality agreement can be hard to prove in court. The suing party must prove that they suffered monetary damages and that the agreement was not overly broad in regards to what could not be revealed – and no matter how much money they potentially gain back, the once-secret information is out there and can never go back to being confidential. Any competitive advantage that those secrets once held is now gone.