SYSTECH SOLICITORS LEGAL UPDATE

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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 20 www.systech-int.com
can be fiercely negotiated and range from a year up to an unlimited period. Many parties are particularly reluctant to accept an unlimited period. Returning to the Japanese manufacturer of super absorbent material used in nappies, unable to obtain an unlimited period it accepted 20 years. This was at a significant detriment to its future business. The confidentiality term is not something that should be horse-traded in negotiations but set based on the predicted time period the information will remain valuable. Conclusions In conclusion when reviewing confidentiality agreements it is important to make sure that critical terms reflect your intentions. Although most clauses of an agreement will be very familiar it is the subtle differences that lead to the effective protection of your commercial interests. www.systech-int.com 21
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Page 5 and 6: The first question to ask is: is re
Page 7 and 8: CLIENT’S GUIDE TO ENFORCING ARBIT
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Page 13 and 14: CHERRY PICKING IN ADJUDICATION Phil
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Page 25 and 26: Summary While arbitration as an alt
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SYSTECH SOLICITORS LEGAL UPDATE

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