Expand Your Confidentiality Clause

'Confidential Information' includes all information of or concerning the Disclosing Party or its business or its employees that is provided by, or otherwise made available by, the Disclosing Party to the Recipient except (i) any such information that is known or becomes known to the general public without disclosure by the Recipient, (ii) any such information that is already known to the Recipient prior to disclosure by the Disclosing Party, as evidenced by one or more written documents that were in the possession of the Recipient prior to the date on which the discussions mentioned above commenced; and (iii) any such information that is received by the Recipient from a third party (meaning someone other than the Disclosing Party or any employee or other contractor of the Disclosing Party) without breach of any confidentiality obligation. The Recipient hereby covenants, acknowledges and represents that the Confidential Information is being disclosed to the Recipient solely for the purposes of fulfilling the obligations of the Recipient under this Agreement (the 'Services'). Accordingly, the Recipient agrees that (a) the Recipient will not use any of the Confidential Information for any other purpose whatsoever other than to provide the Services, (b) the Recipient will not disclose any of the Confidential Information to any other person or entity without the prior written consent of the Disclosing Party, (c) the Recipient will upon the Disclosing Party's request immediately return to the Disclosing Party all documents and other items reflecting or disclosing any of the Confidential Information, and other than to the extent otherwise required by laws to which the Recipient is subject, the Recipient shall not retain any copies, photographs or other recordations of such documents or Confidential Information, and (d) by receipt of the Confidential Information, the Recipient is not acquiring any right, title or interest in any of the Confidential Information. Notwithstanding the foregoing, the Recipient shall not be in breach of its confidentiality obligations hereunder if it discloses any such information that is required to be disclosed by order or subpoena of any court of competent jurisdiction, or by regulation of any governmental agency or authority, provided that in each instance (except to the extent that the Recipient is prohibited from doing so by a court order or otherwise by law) the Recipient first notifies the Disclosing Party of the information to be disclosed (and of the circumstances in which the disclosure is alleged to be required) as early as reasonably possible before such disclosure must be made and provides such cooperation as may be reasonably requested by the Disclosing Party in connection with reasonable actions of the Disclosing Party to avoid, limit the scope of, or otherwise protect, such disclosure. The Recipient hereby agrees and acknowledges that the Confidential Information has economic value by virtue of not being generally known to others, and that it has been the subject of reasonable efforts by the Disclosing Party to maintain the secrecy thereof. The Recipient also hereby agrees that a violation of the covenants contained herein may cause the Disclosing Party irreparable damage for which other remedies would be inadequate. The Recipient therefore agrees that the Disclosing Party shall have the right to obtain such injunctive or other equitable relief from a court of competent jurisdiction as may be necessary or appropriate to prevent a violation of the covenants contained in this letter or to otherwise enforce such covenants. * ** *** ****

This seems to offer pretty strong protection. However, it does not fully address the uncertainty and enforcement concerns noted above. For illustrative purposes, the sample clause above has been marked with asterisks to indicate where the additional language discussed below could be added to more comprehensively provide the intended protection.

Concerns and Solutions

Additional provisions that can improve the sample clause cluster around the following points: 1) creating an ongoing basis to obtain periodic assurances regarding compliance; 2) providing a basis to seek judicial relief; and 3) establishing financial protection in the context of enforcement. As demonstrated below, adding a relatively few additional phrases can address these points comprehensively or, depending upon the bargaining circumstances, some (but less than all) of these concerns can be dealt with by inserting less additional language.

Assurances: In the category of 'you won't get it unless you ask for it,' confidentiality clauses rank prominently. Many confidentiality clauses appear to reflect that all of the thought involved in creating them was focused on defining the information to be protected. It is all well and good to define what a chicken is, but it is equally important to know if the chickens are being kept in the coop. Consequently, a disclosing party should ask for the ability to count the chickens. Adding the following language where the single asterisk appears at the end of the sample clause meets that need:

Upon request by the Disclosing Party made from time to time at reasonable intervals, the Recipient shall deliver to the Disclosing Party an affidavit signed by a duly authorized officer of the Recipient (i) that recites, if true, that to the best of the signatory's knowledge after all due inquiry, there has not been any breach by the Recipient of its confidentiality obligations under this Agreement, or (ii) which describes in reasonable detail each breach by the Recipient of its confidentiality obligations under this Agreement.

Procedural Protection: To help a disclosing party enhance its prospects of receiving a reply to its request for the affidavit described above, a practitioner should build in a carrot or a stick with which to deal with a recalcitrant recipient party. Given the nature of the concern at stake, a disclosing party is unlikely to feel inclined to offer a reward for the desired information. By the same token, a recipient of confidential information should not reasonably interpose any objection or delay to providing the compliance assurances that may be sought from time to time. Accordingly, providing an incentive to avoiding a negative consequence to the recipient should not be controversial in this setting. That incentive can be created by inserting additional language along the lines of the following where the two asterisks appear at the end of the sample clause: