The term confidentiality agreement is used to describe a contract in which two or more parties agree that certain information shared between, or created by, these parties will not be disclosed to others. Confidentiality agreements are often used by companies that want to protect sensitive information about their assets, business operations, finances, employees, products, services, or customers.
Also known as non-disclosure agreements (NDA), confidentiality agreements are oftentimes required by companies before they will share what they consider sensitive information with another party. Examples of information a company might consider confidential include:
- Information that is considered private and not common knowledge outside of the company.
- Information that is required by law or a contract with another party to be maintained as confidential.
- Information that might be considered useful to competitors such as trade secrets.
- Information that, if disclosed, would be harmful to a company's assets, trade partners, customers, or other stakeholders.
Confidentiality agreements serve a number of functions, including:
- Creating a clear definition of the types of information a company believes should remain confidential.
- Preventing the loss of patent rights, since the public disclosure of such information can result in a company forfeiting the rights to an invention under the law.
- Protecting sensitive information from disclosure to others.
Typically, entities that enter into confidentiality agreements are required to:
- Take measures to protect confidential information from disclosure to individuals not authorized to receive the information. This can include labeling documents, placing data in secure locations, as well as other safeguards.
- Use the confidential information only for legitimate business purposes.
- Disclose confidential information to another party only if such disclosure is authorized or legally mandated.
If confidential information is disclosed, and a NDA or confidentiality agreement is in-force, the injured party can claim a breach of contract, seek an injunction, and may be entitled to monetary damages.