Demystifying Legalese in Contracts, Part III: Non-Disclosure Provisions

This is a post by guest blogger Jonathan I. Ezor.

The first blog in this series discussed how while some words do have legal weight, agreements should still be written in clear, understandable language in order to do what they’re meant to. The second blog in this series examined warranties.

One of the biggest mysteries of any business relationship is the non-disclosure provision, aka the confidentiality clause, mostly because people aren’t sure what it means, and what it requires them to do
(and not do). Here’s the first, mission-critical concept: whatever the contract says, a non-disclosure agreement or provision cannot prevent your company’s information from leaking out, but only prohibit unauthorized disclosures. Just like the old saying, a secret shared is no longer a secret. If a piece of information is that potentially damaging to your company, whether in the hands of your business partner or the outside world, do not disclose it. You should also explore other legal protections both for the secret and your right to keep others from exploiting it, like patents.

That said, non-disclosure agreements and provisions are and should be part of most contractual relationships, whether as standalone documents or as provisions of broader agreements, because they set a tone of trust (and provide remedies if that trust is broken). They also help business partners talk, communicate and brainstorm more freely, since they’re not worried about watching everything they are saying. Not every industry uses them (venture capitalists, for example, rarely sign them, and attorneys and physicians are already covered by legal obligations to keep information confidential), but for those that do, they can be a helpful addition to the “toolbox,” provided they are written in clear and understandable language.

Again, let’s look at the sample Web development agreement to demystify a typical, two-way non-disclosure provision:

During the term of this Agreement, each party hereto (the “Disclosing Party”) may disclose to the other party (“Recipient”) information in connection with the performance of this Agreement, and Recipient may otherwise discover information about the Disclosing Party in connection with this Agreement. All such information about the Disclosing Party, including but not limited to technical and business information relating to the Disclosing Party’s products, research and development, production, costs, engineering processes, profit or margin information, finances, customers, marketing, and future business plans, shall be deemed “Confidential Information.” All Confidential Information shall remain the sole property of
Disclosing Party and Recipient shall have no rights to or in the Confidential Information. Recipient shall hold the Confidential Information in strict confidence. Recipient shall not make any disclosure of the
Confidential Information (including methods or concepts utilized in the Confidential Information) to anyone without the express written consent of Disclosing Party, except to employees, consultants or agents to whom disclosure is necessary to the performance of this Agreement and who shall be bound by the terms hereof, or to the extent it is required to disclose such information in the context of any administrative or judicial proceeding, provided that prior written notice of such disclosure and an opportunity to oppose or limit disclosure is given to Disclosing Party.

Notwithstanding the foregoing, Recipient shall have no obligation under this Agreement with respect to any Confidential Information disclosed to it which:

(a) Recipient can demonstrate was already known to it at the time of its receipt hereunder;

(b) is or becomes generally available to the public other than by means of Recipient’s breach of its obligations under this Agreement;

(c) is independently obtained from a third party whose disclosure violates no duty of confidentiality; or

(d) is independently developed by or on behalf of Recipient without use of or reliance on any Confidential

Information furnished to it under this Agreement.