SYSTECH SOLICITORS LEGAL UPDATE

The drafting of confidentiality agreements, also
referred to as Non-disclosure agreements is a small
but important part of knowledge required by those
involved in the construction and engineering field.
The English ‘law of confidence’ is commonly used
by international parties as the basis for agreements
used to protect commercial and technical data.
This article will look at the challenges of protecting
confidential information, the key terms that need to
be included in a confidentiality agreement and the
common mistakes made.
The origin of the law of confidence is in equity and
contract. A duty of confidence will arise naturally in
many situations under the jurisdiction of English law,
although not in enough some footballers may say!
Around twenty years ago a Japanese manufacturer
invented a material that was used in super absorbent
nappies. It was keen to expand its business overseas
and develop process plants in strategically placed
locations around the world. It was faced with the
question how it could best protect its intellectual
property.
One option would have been to register a patent.
One downside being the protection would only
last for a set period and the necessary public
disclosure of the information would eventually lead
to competitors copying the product.
A second option would have been only to proceed
if like Coca-Cola the information could be kept a
closely guarded secret. The practicalities of such
an approach are often challenging. Manufacturers
are required to provide detailed information on its
plant and process before a partner has confidence
to invest.
The Japanese manufacturer decided rather than
registering a patent it would be appropriate to
disclose the necessary information to its partner
under the terms of a confidentiality agreement,
albeit trying to limit information provided as far as
possible.
Now the Japanese manufacturer is faced with
competitors in Europe and China who have built
competing plants that manufacture very similar
products yet it has no remedy. Although the breach of
IP rights is a well known problem in China the lack of
a remedy in Europe relates to the inadequacy of the
negotiated terms of the confidentiality agreement
highlighting the need for careful consideration when
drafting the terms of agreement.
Having reviewed hundreds of confidentiality
agreements it is quite common to receive the
instructions: we would like to keep it very simple, is
the attached okay to sign?
Although around 80% of a well drafted confidentiality
agreement will be almost identical to another well
drafted agreement the critical terms will require a
detailed understanding of the specific facts. Before
answering you need to ask:
• Are you disclosing information, receiving
information or both?
• What is the information being disclosed?
• What is the purpose of disclosing the information?
• How can the other party use the information?
• How long will the information remain valuable?
After obtaining the pertinent facts you need to
reflect them in the confidentiality agreement.
If you are just receiving information, your only
concern is whether the agreement places any
restrictions on the information that will constrain
your intended use. If you are disclosing information
under either a unilateral or bilateral agreement
much greater care is needed over how ‘confidential
information’ is defined and how it can be used.
When defining confidential information parties will
often take the kitchen sink approach, believing all
information will be caught. The danger of this if
some information does not ‘have the necessary
quality of confidence’ as defined by English law it
will not be protected. Although no clear definition of
this test exists it can be appreciated that there must
be some value in the information. Plans to meet up
for lunch do not fulfil the requirement, a top secret
missile plan would, the grey area in between is much
harder to define. Clear drafting that certain technical
information or commercial data should be treated
as confidential is likely to be persuasive to a judge,
rather than a catch all provision.
A confidentiality agreement should also include
administrative procedures that are proportional to
the sensitivity of the information. A top military secret
may warrant being stored on an offline computer, in
an encrypted format, in a secure room where only
limited personnel, who have signed an individual
declaration, can access. However disclosure of
less sensitive information will require less onerous
obligations in order to maintain business efficiency.
The other key clause is the purpose clause. It is not
uncommon to see agreements where a detailed
definition of confidential information is given. The
party receiving the information is placed under
onerous obligations to avoid disclosure to third
parties but can freely make commercial use of the
confidential information as long as it is not disclosed.
Finally it is important to consider the term of the
agreement. A confidentiality agreement will typically
contain two terms; a disclosure period in which the
parties will finish exchanging information and a period
in which the information will remain confidential. The
former is often short and easily agreed. The latter
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