A Mutual Confidentiality Agreement is a legally binding contract that compels between two or more parties who signed it to keep any confidential and proprietary information protected from being leaked to the public. It is also known as a Mutual Non-Disclosure Agreement.
Confidential and proprietary information refers to the information that an individual or entity wishes to be kept private. It involves all types of material, may it be tangible or intangible. Some examples of confidential and proprietary information that you may disclose in a confidentiality agreement are the following:
- Trade secrets
- Patented or unpatented inventions
- Product research and development
- Computer software
- Business processes
- Financial data
- Marketing strategies
- Internal documents and publications
- Referral source lists
- Assets and liabilities
For your convenience, PDFRun has a Confidentiality Agreement template that you can use. It should be filled out with the following information:
Enter the day, month, and year when the agreement will take effect.
Enter the full legal name and business location of the first party.
Enter the full legal name and business location of the second party.
Enter the reason why the parties entered this agreement.
1. Definition of Confidential Information
This section includes the meaning limitations of the confidential information disclosed in the agreement.
Enter the type of information disclosed by the disclosing party to the receiving party that relates to the purpose.
2. Obligations of Non-Disclosure and Non-Use
This section includes the responsibilities of the receiving party upon learning the confidential information, and to whom and in what way the receiving party can disclose the confidential information, if necessary.
3. Return of Confidential Information
This section includes the responsibility of the receiving party to return materials embodying the confidential information to the disclosing party.
4. Ownership of Confidential Information
This section includes that all confidential information will remain to the disclosing party as his or her sole and exclusive property.
Enter the termination date of the agreement.
Enter the number of years to determine how long will the obligations of non-disclosure and non-use will continue after the agreement’s effective date.
6. No Representation or Warranty
This section includes that there are no warranties made by either party under this agreement.
7. Injunctive Relief
This section includes the consequences if the agreement will not be followed accordingly.
8. Governing Law and Dispute Resolution
Enter the state to determine the laws that will be applied to the agreement.
Enter whether the parties consent to exclusive or non-exclusive jurisdiction.
Enter the county or district location of the court where the agreement will take effect.
Enter the city where the court is located.
This section includes the general guidelines of the agreement.
Signed for and on behalf of
Affix the signature of the parties.
Enter the full legal name of the signers and their titles.
What should be included in a confidentiality agreement?
To make a confidentiality agreement legally binding, it must have the following components:
- The legal status of the parties — The agreement should be between two legal entities, not a person and a company or individual. This means that you cannot make this agreement with another individual as only companies and other legal entities are capable of entering into legally binding agreements.
- The parties involved in the agreement — There must be at least two parties involved. This means that you cannot make an agreement with yourself as it would not be legally binding on the other party if they did not agree to it.
- The subject of the agreement — This must be clearly defined by naming what information is to be kept confidential, and who will have access to the information. To enforce this, the information itself should be defined (eg. photos or design drawings) and clearly labeled confidential.
- The time period — The agreement should state the time that it will take effect, for example by entering a start date and end date. This is not always necessary but it would be difficult to prove an agreement was ever in force if it was not stated.
- The actions that must be taken by either party if the confidentiality agreement is breached — This should define what will happen if the other party breaches the agreement or what actions will be taken if the information is disclosed to others without permission. To give an example, you could threaten legal action against the other party if the agreement is breached.
- The signature of both parties, either handwritten or digital — This confirms that both parties understand and agree to abide by the conditions laid out in the confidentiality agreement. Two copies should be made for each party and kept on file. Also, it must be noted that no one can go back and change their mind after signing the document and "agreeing" to abide by it.
What should I be aware of about a confidentiality agreement?
You should be aware that:
- An agreement between two parties does not prevent a third party from accessing information. If you do not wish for someone else to have access to your confidential information, you should ensure they never come into contact with it or that an appropriate agreement like a non-disclosure agreement (NDA) is signed.
- The other party should not be allowed to change the agreement without consulting you first. You could consider this as them denying they agreed to it in the first place, which would make it void and unenforceable. If you do allow changes to be made to the confidentiality agreement, consider signing an addendum to the existing agreement and clearly state what was altered and why it was changed.
- It should not be possible for either party to transfer their rights in the confidentiality agreement without your permission. For example, if you work at a company and sign up for their non-disclosure contract or form, you agree not to disclose information about the company's products or clients. If you wanted to leave the company for another job, they could claim that you are still bound by their confidentiality agreement with them and therefore cannot accept your new position.
- The confidentiality agreement should be limited in time, limited in space, and limited in the subject. This means that the agreement should only be in force for as long as necessary (limited time), apply to a specific location or activity (limited space), and relate specifically to the information that needs protecting (limited subject). This keeps it within reasonable limits and prevents any party from trying to claim it is still enforceable outside of those conditions.
- You should also consider how you would define the other party. If you only refer to them as "a third party", it may be difficult for you to take legal action against them should they breach the agreement. It is better to give a name, and if possible an address and contact details, particularly if court proceedings arise. This will make it easier for you to do something about it should the other party break the agreement.
- If you are not sure how to define information, try referring to examples of what constitutes confidential information. This includes trade secrets or patents, as well as design documents and emails. You could also refer to intellectual property rights which include trademarks, copyrights, and patents.
- Contracts should always be in writing and signed by both parties. This should ideally occur before any confidential information is disclosed or first used by the other party, but it is possible to include clauses that allow for this prohibition to be waived if needed.
- If there are reasonable grounds to believe that you will need to disclose information at some point, consider whether you need to disclose information about having signed a confidentiality agreement. This would be relevant if you were applying for funding, government assistance, or seeking another job.
- If the other party requests your confidential information, ensure this is covered under the confidentiality agreement and ideally that it is subject to an NDA were possible before disclosing any information.
What is a confidentiality agreement and why is it important?
A confidentiality agreement is used to prevent the disclosure of confidential information. It protects any type of documents, drawing, technical datasheet, specifications, computer program, and others that are not generally known in the industry and which affords its owner an opportunity to obtain an advantage over competitors who do not know or use it.
A confidentiality agreement can be used for intellectual property protection or to protect trade secrets. It is usually signed during the business negotiations to finalize a commercial relationship and it specifies that all information and data exchanged between parties shall not be disclosed to third parties without authorization from the other party. It also requires the receiving part to safeguard, secure, and take adequate measures against disclosure or theft of such information.
A confidentiality agreement can also be signed after negotiations with the purpose of ensuring that all the information and data exchanged during the negotiations are kept confidential until a final agreement is reached.
What is a confidentiality agreement used for?
Confidentiality agreements can be used for:
- Transfer of material or technology from a supplier to its client or between two related companies
- Business negotiations, specifically the protection of intellectual property, trade secrets and competitive information shared during business negotiations
- Granting access to a facility or laboratory for diagnostic or maintenance purposes
- Transfer of industrial process knowledge
- Collaborative research and development projects between industrial partners
- Outsourcing activities to another company, including manufacturing, production, assembly, storage, packaging. The confidentiality agreement ensures that all the information about the outsourced activity is kept confidential
- Training employees on specific topics where the confidentiality of the information needs to be ensured
- Internal and external audits in different areas: finance, Quality, Health, Safety & Environment (QHSE), Information Technology (IT), purchasing, and others.
What does a confidentiality agreement protect?
A confidentiality agreement protects certain sensitive information from being released to others. It serves as a contract between two or more parties that establishes prohibitions and safeguards for specified information.
"Confidential Information" extends beyond trade secrets to a broad range of proprietary information, such as financial data, customer lists, business strategies, and practices. Collectively, all Confidential Information is protected under the nondisclosure agreement (NDA).
What is a confidentiality agreement in the workplace?
A confidentiality agreement is used in the workplace to safeguard sensitive information about the company. It helps in establishing a level of trust between the employees and employers. It is a written contract to protect any trade secrets, intellectual property, private data, and any other confidential material from being released to the public. Employees are asked to sign a confidentiality agreement before being given access to any sensitive information.
What is the difference between a confidentiality agreement a non-disclosure agreement?
A confidentiality agreement and a non-disclosure agreement are two very different legal instruments. A confidentiality agreement primarily protects the owner of sensitive information from unauthorized disclosure. A non-disclosure agreement (NDA) is primarily a tool for business owners to document and assess their legitimate business concerns before entering into an arrangement with another party, such as a supplier or contractor.
There are two major types of NDA: a unilateral NDA is called a one-way or mutual NDA and the most typical type of NDA is a mutual or two-way agreement.
The primary purpose of an NDA is to prevent the unauthorized disclosure of confidential information.
Complemented by contract law, confidentiality agreements supplement state trade secret laws -- which vary from state to state -- in order to protect undisclosed, valuable business information. To be protected by trade secret laws, the business information must not be generally known or readily ascertainable through reverse engineering. If it is known by others or readily discoverable, then you do not qualify for protection under trade secret laws.
However, confidentiality agreements may protect any type of information that the parties want to protect, not just trade secrets.
Confidentiality agreements can protect many forms of information other than trade secrets. Typically, if the business information qualifies as a trade secret under state law and you take reasonable efforts to maintain its secrecy (called "protectable interest"), then it is proper to require those with whom you share it to sign confidentiality agreements.
There are three primary components of a confidentiality agreement. First, the agreements must establish that the disclosing party has a protectable interest in the information being disclosed and prevent further disclosure without proper authorization. Second, they define what type of information is covered by the agreement and provide for appropriate use and protection of the material once it is shared. Third, they usually provide for non-disclosure of information by the receiving party.
Non-disclosure agreements are most common when one company wants to share intellectual property with another.
It is important to note that confidentiality agreements only act as a barrier against unauthorized disclosure; it does not act as insurance in case your business information is discovered by a third party.
When should you use a confidentiality agreement?
You should use a confidentiality agreement when working with another party. This will help protect both your company's information and your own interests. It serves the following functions:
- It gives you legal recourse in case someone violates the NDA, which means you can take them to a court or seek other remedies.
- It confirms the existence of a confidential relationship between you, the person receiving the information (referred to as an "asset"), and the party providing it (referred to as a "disclosing party").
- It details what information is considered confidential, which basically means that if someone breaches the NDA, you can prove exactly what confidential information was leaked.
- It gives the disclosing party (i.e., the person giving away information) control over who receives that information and how it is used.
- Such agreements are not only common but also legally binding, which means that if someone violates the agreement or discloses confidential information, they can be sued for damages.
How do I start a confidentiality agreement?
Start creating a confidentiality agreement by using the following steps:
- Determine the type of Confidentiality Agreement you will use (i.e., open, limited, or confidential)
- Name and Address each party to the agreement
- Identify how the information will be provided
- Define with specificity what is considered "Confidential Information" under the agreement (e.g., written or oral, including specific examples)
- Limit the term of confidentiality to a specific time period
- State that this agreement does not constitute an employment agreement; and state what you will do if for some reason your relationship ends (e.g., release information, return all copies of materials,)
- Identify what you will do in the event of a breach or threatened breach of confidentiality by any party to this agreement
- Insert your choice of any specific remedies available to you for a breach by one of the parties to this agreement, including but not limited to money damages (i.e., liquidated sum) and injunctive relief
- Specify whether there will be any third party beneficiaries to this agreement
- State that each signer certifies he/she has the authority to enter into this agreement on behalf of his or her respective company
- Include a specific provision addressing how disputes about this confidentiality agreement will be handled. You can choose arbitration or mediation, or you can just specify that the prevailing party in any legal action will be entitled to reimbursement of legal fees and costs
- Sign each party to this confidentiality agreement
- Have each signature notarized by a Notary Public who is also an adult witness (signer) to the agreement
- Enforce your confidentiality rights by using a court of law where necessary.
What happens if you break a non-disclosure agreement?
There are consequences if you break a non-disclosure agreement. The consequences depend on the agreement itself and the nature of what was disclosed. The penalties for breaking a non-disclosure agreement can be severe, including termination from employment — when in the bounds of employment — and large fines.
Read the terms and conditions of an NDA to know what the consequences could be if you break it.
What makes an NDA legally binding?
A non-disclosure agreement becomes legally binding when it is voluntarily signed by the person(s) bound by its terms. Therefore, it has to be agreed upon before any confidential information is exchanged between two parties. In the early stages of a project, it might seem quite unnecessary but as companies become more closely involved in each other's business and share more important data, having a written agreement will protect both parties if any disputes should arise over the use of these protected materials.
What is a confidentiality policy?
A confidentiality policy is a contract between an organization and its customers, employees, and business partners that governs how confidential information must be handled.
Why is a confidentiality agreement important?
A confidentiality agreement is important because it gives you the ability to keep trade secrets and other private business information out of the hands of your competitors.
At the same time, a confidentiality agreement protects your customer and business relationships by making clear when and how someone can use confidential information about your company. It also is important when hiring employees or independent contractors who need access to trade secret information.
Can I be fired for not signing a confidentiality agreement?
Not signing a confidentiality agreement may not be a reason to get fired, but it definitely can't be considered a good idea. Especially if the company you're working for values privacy and secrecy. Employers expect their employees to be discreet. They expect them to know what they can and cannot say in public, by word of mouth, or on social media.
What are the consequences of breaking a confidentiality agreement?
Breaking a confidentiality agreement has consequences. And the consequences vary, depending on the agreed-upon terms and conditions. But in general, the consequences are severe for anyone who breaks a confidentiality agreement, including getting sued and fined.
How long do confidentiality agreements last?
A confidentiality agreement can last depending on the timeframe stipulated in it. Some may last for a year or two while some last for decades and even a lifetime. It really depends on the agreement itself and the provisions involved.
What’s another word for a confidentiality agreement?
Other names for a confidentiality agreement are a nondisclosure agreement (NDA) and a non-compete agreement. NDAs and noncompetes both attempt to restrict the ability of an employee or contractor from sharing confidential information with others, but they differ in important respects.
What are some tips when filling out a confidentiality agreement?
If you wish to modify the Confidentiality Agreement template on PDFRun or write one on your own, here are a few suggestions that might help you in doing so:
Ensure the accuracy of the information you’ve entered in the agreement.
Right from the beginning, you should enter precise and accurate data. Verify every personal detail written in the contract to avoid misunderstandings and other problems that might arise in the future.
Decide whether the agreement is unilateral or mutual.
It is important to determine if the confidentiality agreement is unilateral or one-way or mutual or two-way. This is done to explain and clarify what kind of transaction the two parties will engage in.
A unilateral agreement is where only one party is disclosing confidential and proprietary information. As a result, the receiving party of the agreement will be the only one who is obligated to abide by the agreement's conditions.
A mutual agreement is where the two parties involved are both sharing and disclosing confidential and proprietary information on their end. As a result, both parties will be bound by the agreement and will be prohibited from sharing each other's confidential information.
Specify the confidential and proprietary information of both parties.
The two parties must agree and specify what information will be concealed and should not be shared with the public. It is important to determine the specifics of the confidential information to make sure that the two parties are on the same page. Both parties' confidential and proprietary information should be clearly and precisely stated in this agreement since it is the primary basis for its creation.
Indicate the duration of the agreement’s effectiveness.
You must include a specific time frame to let the two parties know how long will the agreement become enforceable. There is no standard term for the confidentiality agreement, but it is commonly executed for two to five years.
List down the consequences.
A confidentiality agreement is created to ensure that specific information is kept safe and private. You should make a list of the penalties that will be imposed on the party that breaches the contract. By adding this provision, all parties are aware that they must fully adhere to their duties in order to prevent conflicts and repercussions.
Affix your signature.
To validate the confidentiality agreement, the two parties must sign it after it has been written and reviewed. It is advisable that the parties involved must have their own original copy of the agreement to ensure that both parties have an approved copy. It is important for both parties to have an original copy so that they can present it as a piece of evidence in case the document is violated or needs to be given to a third party.
Consult an attorney.
If you're having trouble drafting a confidentiality agreement, you should get advice from an attorney. Having a professional on your side will make your job much simpler and more effective. They can provide you with the necessary knowledge you'll need to effectively draft the agreement because they've likely already written and handled similar transactions.