by Emilie Duguay of Lavery, de Billy
Are you an inventor or developer who wishes to approach businesses in order to sell, distribute or manufacture your discoveries? Have you met a potential partner? Are you getting ready to negotiate the purchase or sale of a business or enter into any other significant transaction? Does this potentially involve the disclosure of strategic information or other confidential information about your business?
The conclusion of a confidentiality agreement should be the starting point of the business relationship. This agreement should be signed even before you engage in preliminary discussions and negotiations concerning the terms of the deal. Although a confidentiality agreement is not foolproof, the fact remains that using one can help you protect your business secrets and avoid worry and expense.
Confidentiality agreements provide that the party to whom confidential information is disclosed, the recipient, will keep it confidential. It is all the more crucial to have such an agreement in place when the party you want to negotiate with is a direct competitor or someone who might appropriate your technologies, ideas or confidential information for its own purposes.
NEGOTIATING THE CONFIDENTIALITY AGREEMENT
The negotiation of the confidentiality agreement is often part of the initial contact with the other party and presents an opportunity to assess how the other party approaches contractual arrangements. Difficult negotiations at this stage of the relationship should trigger an alarm. Such difficulties do not necessarily mean that you should end the relationship, but they may nevertheless prove to be indicative of the complexity of the coming contractual negotiations and business relationship.
After reflection, you may conclude that the other party is not the right partner for you and that its vision is incompatible with your own.
THE CONTENT OF A CONFIDENTIALITY AGREEMENT
When negotiating and drafting a confidentiality agreement, the parties should draw up a list of the information that will be disclosed and its nature, for example, technical information, financial data and customer lists, and accurately describe both the information they wish to include in the confidentiality agreement and the information that it will not cover. Be aware, however, that only information which is truly confidential can be protected and that information already in the public domain is generally excluded from the agreement.
The remedies in the event of misuse or improper disclosure of confidential information, particularly the injunction and right to compensation, should also be set out in the agreement.
The term of the agreement should also be specified. Your confidential information should not cease being confidential as soon as the negotiations break down. Ideally, the confidentiality obligation should never expire. The term of the agreement can vary depending on the information disclosed, the nature of the business and the parties involved, and will generally be between two and five years.
MANAGING THE CONFIDENTIALITY AGREEMENT
Signing a confidentiality agreement does not mean that you are, from then on, giving the other party unlimited access to your confidential information. The party that wants to protect its information should manage the provisions of the agreement carefully.
In this regard, to avoid confidential information from being disclosed or improperly used, it is wise and strategic to limit access to the people who truly “need to know” and to use phased disclosure according to what is needed for the purposes of the transaction, or the progress of negotiations. It is also useful to write down a list of the information that is disclosed. If a problem arises, this will make it easier to prove that specific information was disclosed at a particular time. You should also ensure that all confidential information and copies thereof that your partner has made is returned to you or destroyed. It would be troubling to discover that your confidential trade secrets have been disclosed by your partner through inadvertence.
A well-kept secret can make the difference between success and misadventure… Confidentiality agreements are often overlooked and left out or, copied from the Internet to reduce the costs of legal services. It is very important to read the provisions of any pre-written or standardized agreement carefully prior to signing it and have it drafted or reviewed by a lawyer who is well aware of the specific context in which it is entered into. Doing so ensures that you start your business venture on the right foot and cover all the contingencies.
A confidentiality agreement protects your ideas and your business. Take the step to make sure your business partners stay silent!
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