Before a party enters into negotiations or preliminary discussions regarding any potential business transaction, idea or product care must be taken by both sides so that the communications are covered by a thorough agreement which will permit the full disclosure of potentially unique, profitable or secret information without fear of the other side appropriating and using it for its own benefit. If no such agreement exists the potential for litigation rises significantly if in the future one of the parties publically reveals some product or idea which bears a resemblance to that which was discussed previously, even if that product or idea was created without any use whatsoever of any of the information obtained during those prior communications. The disclosing party may reasonably sue and recover damages stemming from the theft of the information with only having to prove that the information was previously provided and thereafter a commercial activity was undertaken by the recipient of that information which created a profit. Therefore confidentiality, non-circumvention, and non-disclosure agreements are highly significant in todays litigious business climate. Don’t make the mistake of discussing any business ideas without a thorough and professionally created contract which will protect both sides.
What should such an agreement include? Of primary importance to the agreement is a clear statement on the topic of discussions in as much detail as possible. Something like “the sale of manufacture, sale and distribution rights to a product which is intended to facilitate the coffee brewing process. The product consists of a plastic base with a metallic cap and two handles (illustrative sketches of proposed product attached in Exhibit A)” is far better than “a new type of coffee brewer.” The product or idea should be identified with as much specificity as possible, this is to protect both parties from any misunderstandings. Variations on the original idea should also be protected from disclosure, so that the recipient cannot claim that the mere modification of the original information will allow it the full rights to market and profit from information it legally owes compensation for.
Another provision of significance is to include a exceptions to the use and disclosure of information previously known, obtained from independent sources or publically disclosed at any time by the provider of the information. This will provide a powerful defense to the recipient if sued, in that showing that the information was already publically disclosed in any manner by the provider or that it was obtained through other independent channels or previously known by the recipient will allow the mitigation or full avoidance of potential damage awards. Another exception should include information whose disclosure is compelled by some governmental or administrative body.
Finally, some specific term to the confidentiality, non-circumvention or non-disclosure agreement should be expressly stated. This puts a mutually agreed upon time frame from which the provider of the information may profit from the idea from any source. A time limit may be any number, from one year to permanent duration as agreed by the parties. It is also advisable to consider limiting the agreement’s application to a certain geographical location, such as a state, a nation or even a continent. This is subject to negotiation and obviously the recipient will want as small a location as possible, while the provider will want the agreement’s geographical application to be unlimited or world wide.
Obviously boilerplate provisions should be included, such as alternative dispute resolution, applicable law, assignability, succession, notices, waiver of any provisions, and the like. These agreements must be reasonable in scope, and are also governed by case law within most states. Please consult competent contract drafting legal counsel for the appropriate conformity to state law and for the creation of a lawfully binding non-disclosure, confidentiality, and non-circumvention agreement.