A confidentiality clause, also known as a non-disclosure agreement (NDA) or confidentiality agreement, is a legal provision included in contracts to protect sensitive and confidential information shared between parties involved in a business transaction. Its purpose is to ensure that the information remains confidential and is not disclosed to third parties without proper authorization.

The confidentiality clause serves several important functions:

• Protection of Sensitive Information: The clause establishes the obligation of all parties to keep the shared information confidential. It prevents the unauthorized disclosure, use, or dissemination of sensitive information, such as trade secrets, proprietary business practices, financial data, customer lists, or any other confidential information that may be disclosed during the course of the contract.
• Preserving Intellectual Property: If the contract involves the exchange of intellectual property, such as inventions, designs, or copyrighted material, the confidentiality clause plays a crucial role in safeguarding these valuable assets. It ensures that the receiving party does not disclose or misuse the intellectual property shared by the disclosing party.
• Preserving Competitive Advantage: By maintaining confidentiality, the clause helps to protect the competitive advantage of the parties involved. It prevents one party from gaining an unfair advantage by misusing or disclosing confidential information to competitors.
• Establishing Legal Recourse: In the event of a breach of the confidentiality clause, the injured party can seek legal remedies and pursue damages. The clause typically outlines the remedies available, such as injunctive relief, monetary damages, or specific performance, to ensure that the parties have a means of enforcing the confidentiality obligations.
• When drafting a confidentiality clause, it is important to ensure that it is clear, comprehensive, and tailored to the specific needs of the parties and the nature of the information being shared. The clause should specify what constitutes confidential information, the duration of the confidentiality obligations, any exceptions to the obligations (such as information already in the public domain), and the consequences of a breach.

It is advisable for parties to seek legal advice when drafting or negotiating a confidentiality clause to ensure that it adequately protects their interests and complies with applicable laws and regulations.

Example 1: Basic Confidentiality Clause Template

For the purposes of this agreement, “Confidential Information” refers to any information, whether in oral, written, electronic, or other form, that is disclosed by one party (the “Disclosing Party”) to the other party (the “Receiving Party”) during the course of the contract. Confidential Information includes, but is not limited to, trade secrets, business plans, financial data, customer lists, marketing strategies, and any other information that is identified as confidential at the time of disclosure.

The Receiving Party agrees to maintain the confidentiality of the Disclosing Party’s Confidential Information and shall not disclose, directly or indirectly, any Confidential Information to any third party without the prior written consent of the Disclosing Party. The Receiving Party shall use the same degree of care to protect the Confidential Information as it uses to protect its own confidential information of a similar nature, but in no event less than a reasonable degree of care.

The Receiving Party’s confidentiality obligations shall not apply to information that: a. Is or becomes publicly available through no fault of the Receiving Party; b. Was in the Receiving Party’s possession prior to its disclosure by the Disclosing Party; c. Is lawfully obtained by the Receiving Party from a third party without any obligation of confidentiality; or d. Is independently developed by the Receiving Party without reference to or use of the Disclosing Party’s Confidential Information.

The Receiving Party’s confidentiality obligations shall continue for a period of [insert duration] years from the date of termination or expiration of this agreement, unless otherwise agreed upon in writing by the parties.

In the event of a breach or threatened breach of this confidentiality clause, the Disclosing Party shall be entitled to seek injunctive relief, as well as any other remedies available at law or in equity.

Example 2: Intellectual Property-Focused Confidentiality Clause Template

The term “Confidential Information” shall include all proprietary information, trade secrets, know-how, inventions, technical data, designs, processes, formulas, algorithms, source code, customer lists, marketing strategies, and other intellectual property disclosed by one party (the “Disclosing Party”) to the other party (the “Receiving Party”) during the course of the contract.

The Receiving Party acknowledges that all Confidential Information disclosed by the Disclosing Party shall remain the exclusive property of the Disclosing Party. The Receiving Party agrees to hold the Confidential Information in strict confidence and to use it solely for the purpose of performing its obligations under this agreement. The Receiving Party shall not disclose, reproduce, distribute, or use the Confidential Information for any purpose other than as expressly authorized by this agreement without the prior written consent of the Disclosing Party. The Receiving Party agrees that during the term of this agreement and for a period of [insert duration] years thereafter, it shall not directly or indirectly engage in any business or activity that competes with the business of the Disclosing Party, using or relying on the Confidential Information.

The Receiving Party’s confidentiality obligations with respect to the Confidential Information shall survive the termination or expiration of this agreement and shall continue for a period of [insert duration] years, unless otherwise agreed upon in writing by the parties. The parties agree that a breach or threatened breach of this confidentiality clause may cause irreparable harm to the Disclosing Party for which monetary damages would not be an adequate remedy. In addition to any other remedies available at law or in equity, the Disclosing Party shall be entitled to seek injunctive relief to enforce the confidentiality obligations set forth herein.

Example 3: Employee Confidentiality Clause Template

 For the purposes of this agreement, “Confidential Information” refers to any information disclosed by the Company to the Employee, whether in oral, written, electronic, or other form, that is not publicly known and is considered proprietary, confidential, or trade secret information. The Employee agrees to maintain the confidentiality of the Company’s Confidential Information and shall not disclose, use, reproduce, or distribute such information to any third party without the prior written consent of the Company. This obligation shall continue both during and after the Employee’s employment with the Company.

The Employee agrees that during the term of their employment with the Company and for a period of [insert duration] years following the termination of employment, they will not directly or indirectly engage in any business or activity that competes with the Company or solicit the Company’s clients, customers, or employees.

Upon the termination of employment, the Employee shall promptly return to the Company all Confidential Information, including any copies or reproductions thereof, in their possession or control. The Employee acknowledges that a breach of this confidentiality clause may cause irreparable harm to the Company, and in addition to any other remedies available at law or in equity, the Company shall be entitled to seek injunctive relief to enforce the confidentiality obligations set forth herein.

Example 4: Joint Venture Confidentiality Clause Template

The term “Confidential Information” shall include any information, data, documents, materials, or trade secrets disclosed by either party (the “Disclosing Party”) to the other party (the “Receiving Party”) in connection with the joint venture, whether disclosed orally, in writing, or in any other form. The Receiving Party agrees to keep all Confidential Information confidential and to use it solely for the purpose of carrying out the activities related to the joint venture. The Receiving Party shall not disclose the Confidential Information to any third party without the prior written consent of the Disclosing Party, except to the extent required by law or as otherwise expressly permitted under this agreement. The Confidential Information disclosed by the Disclosing Party shall remain the property of the Disclosing Party, and no license or right, express or implied, is granted to the Receiving Party with respect to the Confidential Information, except as expressly provided in this agreement.

The Receiving Party’s obligations with respect to the Confidential Information shall survive the termination or expiration of the joint venture agreement and shall continue for a period of [insert duration] years.

This confidentiality clause shall be governed by and construed in accordance with the laws of [insert governing law jurisdiction]. Any disputes arising out of or in connection with this clause shall be subject to the exclusive jurisdiction of the courts of [insert jurisdiction].

• Clearly Define Confidential Information: Begin the clause by clearly defining what constitutes confidential information. Provide a specific and comprehensive definition that covers the types of information you intend to protect. This can include trade secrets, financial data, customer lists, proprietary technology, or any other sensitive information relevant to the contract.

• Specify the Purpose and Scope: Clearly state the purpose for which the confidential information is being shared and the scope of the confidentiality obligations. This helps to establish the context and ensure that the information is protected only for the intended purpose.

• Use Clear and Precise Language: The language used in the confidentiality clause should be clear, precise, and unambiguous. Avoid vague or overly broad terms that may lead to confusion or disputes regarding the scope of the obligations.

• Include Exceptions and Permitted Disclosures: Specify any exceptions to the confidentiality obligations, such as information already in the public domain or information that must be disclosed pursuant to a legal requirement. Additionally, if there are specific circumstances where disclosure is permitted (e.g., to professional advisors or subcontractors), include provisions to cover those scenarios.

• Establish the Duration of Confidentiality: Clearly state the duration for which the confidentiality obligations will apply. This can be a specific timeframe (e.g., five years) or tied to a specific event (e.g., termination of the contract). Consider the nature of the information and the reasonable period required to protect it.

• Outline the Consequences of Breach: Clearly state the consequences of a breach of the confidentiality obligations. This can include remedies such as injunctive relief, monetary damages, or specific performance. Including these provisions can serve as a deterrent and provide a legal recourse for the injured party.

• Address Return of Confidential Information: If applicable, include provisions outlining the return or destruction of confidential information upon termination or expiration of the agreement. Specify the timeline and the manner in which the information should be handled to ensure its confidentiality is maintained.