Many companies, both big and small, often require parties with which they do business to enter into confidentiality agreements. Itís standard practice at large companies to require that a confidentiality agreement be in place before any business can be conducted. In addition, smaller companies often require signed confidentiality agreements to protect proprietary new businesses processes they have developed, such as a new technology or manufacturing technique. The founders of startups often even seek to get a confidentiality agreement in place before even disclosing the very nature of their business model to investors, which is a bit odd because an investor has to know something about a startup before they can decide whether they have enough interest in investing in the startup to justify taking a meeting. At many technology companies the focus on protecting confidential information is so intense that visitors to the companiesí offices canít even get in the door without signing an overly broad confidentiality agreement template thrust in front of them by the receptionist. Obviously once this visitor is in the door, they have little to choice but to sign the template and typically they are not even open to negotiation.
These companies typically ask people to sign these overly broad, "one size fits all" templates primarily because their in-house lawyers expect that their employees will carelessly or unknowingly disclose valuable confidential information without the proper contractual protections in place. While this approach may make sense in certain situations, it often gets applied in other business transactions where the "one size fits all" approach only creates more problems than it solves. When this overly broad approach is applied in a more complicated business situation, such as a sales or licensing arrangement, it often prevents the parties from focusing on crucial business issues that need to be fully fleshed out in order to ensure a "meeting of the minds" and a full understanding between the parties of the true nature and terms of the business relationship they are undertaking.
Hereís a real life example: many standard nondisclosure agreement templates contain a provision that prescribes how long the party receiving confidential information is obligated not to disclose it to anyone else. Many companies simply take a one size fits all approach (or in this case a one length fits all approach) and require that the party sign the companyís standard confidentiality agreement which requires the party to keep the information confidential for an arbitrary length of time, say five years. The problem with this is it does not give any consideration to the actual information being disclosed. For example, what if the information remains proprietary and commercially valuable long after the five year term expires? At that point the party that received the information five years earlier is free to use it, even in direct competition with the party from which they received it. You might then say the way to avoid this problem is to simply require that the party receiving the information keep it confidential forever, with no exceptions. But what if the party obtains that information from another party who has no obligation of confidentiality? Or the party derives the information independently, without relying on or referring to the original confidential information? In that case, the party receiving the confidential information seems to be unfairly prohibited from using information that they received or developed independently from the original confidential information.
So whatís the moral of the story? Next time someone asks you to sign their "standard confidentiality agreement," take a hard look at the information they plan to disclose to you, how long they seek to require you to keep it confidential, and under what exceptions you can disclose the confidential information. You may find that what the other party is asking of you doesnít make much sense in light of the actual information you would receive from the other party and the nature of the business you are seeking to conduct with them.