In this article you will learn more about one of the most used legal documents by companies: the confidentiality agreement. From definition, through the key points to consider, to different types of confidentiality agreements: everything you need to know.
A confidentiality agreement comes into play when confidential information needs to be disclosed and protected. It is a contract that obligates the person or organization receiving confidential information to keep it secret.
Generally, information is considered confidential if it is not known to the public and the owner has an interest in keeping it secret.
The confidentiality agreement can cover a very wide range of cases and can be entered, for example:
There is no difference between a non-disclosure agreement (or NDA in short) and a confidentiality agreement. Both words describe the same document and can be used interchangeably.
If only one person is sharing confidential information (for example, a research lab providing access to visitors), a unilateral confidentiality agreement is typically used because only one party has an interest in protecting the information. If two parties are sharing information (for example, two companies considering collaboration to develop a new product), the confidentiality agreement will be bilateral (or multilateral if there are more than two parties).
When you share confidential information about your company or projects, you expand the circle of people who have access to that information, increasing the risk that it will fall into the wrong hands.
Furthermore, the person to whom you disclose your secrets is seldom obligated to keep them to himself or herself without further ado: He or she must explicitly commit to do so in a confidentiality agreement that clearly states that information must be kept secret. Only then this person will be liable to you in case of a breach of his or her confidentiality obligations.
When about to share confidential information with a potential business partner, one usually considers the following questions:
The critical question is what a confidentiality agreement must contain to effectively protect the interests of the parties and the confidentiality of the information.
In addition, we would like to highlight two aspects of confidentiality agreements that may seem less obvious at first glance, but provide a great deal of clarity and certainty in the relationship between the parties:
In the following paragraph, we will guide you through these important points.
First, it must be defined what information is shared and what is regarded as confidential.
In general, confidentiality extends to all information disclosed that is not known to the public and that the parties have an interest in keeping secret. For example, if a sales employee resigns, the obligation of confidentiality generally relates to data regarding the employer’s customers and sales techniques.
When parties are considering a business partnership or acquisition, confidentiality refers not only to information about the parties and their business, but also to the fact that such a project is being considered and negotiations are being conducted at all.
The central obligation of a confidentiality agreement is to keep the information secret and not to disclose it to third parties. This point must be made clear, since in many cases absolute secrecy is not practicable.
First, a number of persons must have access to the information, for example, employees of the parties or external advisors. In this context, it is envisaged that information will be provided on a need-to-know basis, i.e., to those who absolutely need to know it, for example, to evaluate a project. The question then arises as to what the parties can do with the confidential information.
Basically, there are two possibilities: Either a party only has a duty of confidentiality (for example, a visitor to a laboratory or a departing employee) and neither can nor must do anything with it, or it needs to do something with the information (for example, assess the feasibility of a project) and may use the information for this purpose only. In the latter example, if the project is not realized, the confidential information may not be used by the parties for their own business (for example, in order to develop and launch a competing product based on the information received).
For a confidentiality agreement, an important factor is how long beyond the duration of the agreement the confidentiality obligation is to apply. The actual term depends on the specific interest of the parties in keeping the disclosed information confidential.
If only one party requires confidentiality, an unlimited duration (i.e.: without a term) is often sought, since it wants to ensure that the confidential information remains secret forever. However, this is often impractical if there is a high probability that the information will eventually become public knowledge. For example, an employee who has worked on the development of a product and resigns must, of course, keep all product-related information confidential – even after the resignation. But once the product is on the market, there is no reason to keep it secret.
In addition, confidentiality agreements may contain other obligations, such as exclusivity in negotiations, and the parties cannot commit to them indefinitely. For this reason, the parties often agree on a term.
In the event of a breach of the confidentiality agreement, the question arises as to what the parties can do. Indeed, as soon as a party has breached the confidentiality of information, it is no longer confidential. The law generally provides that the party who has breached its obligations must compensate for the resulting damage.
However, it is often very difficult to quantify the amount of damage caused by a breach of confidentiality. On the one hand, in the case of confidentiality agreements that relate to a project that has not yet been completed, it is very difficult to prove financial damage because the damage has not yet occurred. On the other hand, even if the damages can be quantified, it must still be shown that it was the breach of confidentiality and not other factors (such as a competitor launching a similar product without knowledge of the confidential information) that caused the damage. For these reasons, the parties may agree on a contractual penalty.
This allows for a lump-sum payment of the damage, which then no longer has to be proven. As soon as a party breaches its obligations, it must pay the stipulated contractual penalty. This not only provides an incentive for the parties to maintain strict confidentiality, but also gives them the opportunity to know in advance (and limit) the amount of their liability should the information be disclosed to third parties despite all the measures they have taken.
The confidentiality agreement must be signed by all parties, even if only for evidentiary purposes. All parties exchanging and/or having access to confidential information must undertake to keep it secret and thus sign the confidentiality agreement. Even in the case of a unilateral confidentiality agreement, not only the receiving party but also the party sharing confidential information must sign it.
If you hire a lawyer to draw up the confidentiality agreement, he or she will need an average of about 3 hours, depending on the specific circumstances. The hourly rates of lawyers vary according to seniority and cantons, but an average of CHF 300 per hour seems quite realistic.
Of course, the price may increase if the parties exchange several drafts before signing the final confidentiality agreement.
If you have legal expertise yourself, you can find free or non-free Word or PDF templates on the Internet and adapt them yourself, although in this case the risk of making mistakes is high, especially if the source is not verifiable.
On Approovd it is possible to create a legally secure confidentiality agreement yourself without any previous knowledge, from CHF 19
With Approovd you can create 7 different templates of a confidentiality agreement. In our contract library you can also decide whether you want to draft a short or a standard version.
Following templates of Confidentiality Agreements in German can be created on Approovd:
Following templates of Confidentiality Agreements in English can be created on Approovd:
Following templates of Confidentiality Agreements in French can be created on Approovd:
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