Confidentiality Agreement: Protecting Your Confidential Information

Author: Ian Aldridge, Progressive Legal

In the fast-paced world of business, safeguarding your intellectual property (IP) is paramount. As a business owner in Australia, you’ve likely heard of a confidentiality agreement, but do you fully understand its significance?

On this page, we’ll unravel the intricacies of confidentiality agreements, shedding light on their importance, components, and the legalities surrounding them.

What is a confidentiality agreement?

A confidentiality agreement is a legal pact between two or more parties entering into a business relationship, project, or joint venture. This agreement becomes important when sensitive information is at stake, acting as a shield for your intellectual property.

Typically, one party seeks insights into the other’s business or ideas, making it essential for both to acknowledge, in writing, their commitment to keeping the shared information confidential. This agreement can be either one-way or mutual, depending on the circumstances.

Under Australian law, when no monetary exchange occurs, a deed of confidentiality is the appropriate legal document, emphasising the gravity of confidentiality.

Why do I need a confidentiality agreement?

When should I use a confidentiality agreement?

Here are some common situations where a confidentiality agreement may be used:

Commercial Confidentiality Agreement

In collaborations involving projects, business ventures, mergers, investments, or due diligence, where commercially sensitive information is shared.

For example, working with an app developer or web developer where you would need to disclose confidential information before working out whether they can, in fact, do the task and in order to provide a scope and quote for the work.

Staff Confidentiality Agreement

Essential for companies employing staff, particularly if trade secrets or confidential data are at stake. This agreement reinforces staff obligations regarding confidentiality.

Contractor Confidentiality Agreement

When hiring contractors and disclosing significant business or project information. This guards against the risk of the contractor sharing information with others in the industry.

Case Examples

Mckenna Freight Lines Pty Ltd v Toll Holdings Ltd & Anor [2005] WASC 57 (13 April 2005)

This is a classic scenario of where one company is considering selling its business and another company signs a Confidentiality Agreement for the purpose of conducting due diligence.

In this case, McKenna Freight gave the Toll entities “information, documents and records relating to the plaintiff’s past, existing or future business or strategic plans to enable the first defendant to investigate the feasibility of acquiring some or all of the plaintiff’s business”.

The court found that Toll had not breached the Confidentiality Agreement by later using the confidential information for purposes other than the ‘permitted purpose’, namely the operation of the Toll business, because the information ceased to be confidential once Toll had entered into the sale agreement.

APT Technology Pty Ltd v Aladesaye [2014] FCA 966 (5 September 2014)

This was a Federal Court case in which an employee of APT (who was in a managerial position) dealt with clients and used the Company’s confidential information in order to develop a new business in direct competition with ATP.

The employee had signed a Confidentiality Agreement and taking the company’s property was a breach of this Agreement.

An injunction was granted to stop the employee from using his APT’s information and dealing with its clients for a period of 2 years.

What key components should be included in a confidentiality agreement?

When drafting a confidentiality agreement, it’s like putting together the pieces of a protective puzzle. Here’s a breakdown of essential points, ensuring your agreement covers all the bases:

1. Clearly Identifying Parties

Make sure the agreement pinpoints who’s sharing and who’s safeguarding the confidential information. For a real-world example, check out Futuretronics.com.au Pty Limited v Graphix Labels Pty Ltd [2007] FCA 1621 (29 October 2007).

2. Stating the Purpose Clearly

Clearly mention why you’re sharing the information. Be transparent about the approved purpose behind the disclosure.

3. Accurate Identification of Information

List down what’s confidential. Precision matters here, ensuring everyone is on the same page about what needs protecting.

4. Listing Confidentiality Circumstances

Detail when information must stay confidential and, just as crucially, when exceptions may apply. It’s all about setting clear boundaries.

5. Handling Confidential Information

Lay out how the sensitive details should be treated. Consider adding any necessary security measures for an extra layer of protection.

6. Setting the Terms and Conditions

Define how long the confidentiality rules apply. Also, specify the situations in which the agreement can be terminated, if any.

7. Post-Termination Procedures

Plan for the endgame. Outline what happens to the confidential information when the agreement wraps up. Are there obligations to destroy or return documents? Get it in writing.

8. Warranties on Authority and Capacity

Both parties should assure each other that they have the right authority and capacity to enter into the agreement. It’s a mutual trust-building step.

9. Considering Additional Obligations

Use this opportunity to think about any extra commitments. Maybe a non-export clause or a no-reverse engineering clause fits the bill for added protection.

10. Noting the Limitations of Damages

Spell it out: damages might not cut it if there’s a breach. Clearly, communicate that damages alone may not be sufficient for the fallout.

11. Powerful Indemnities

In case of a breach, the party at fault should be ready to cover the losses suffered by the other party. This clause can be a game-changer.

In a nutshell, a well-drafted confidentiality Agreement is like a shield for your secrets. Keep it simple, cover all the bases, and remember, it’s your business’s safeguard in the world of collaboration and confidentiality.

Do I need a lawyer to draft my confidentiality agreement?

While templates are available online, relying on them poses risks. Tailored agreements drafted by qualified lawyers provide the necessary protection.

Investing in a well-thought-out agreement is a prudent choice to avoid playing “Russian Roulette” with your intellectual property.

In Maggbury Pty Ltd v Hafele Aust Pty Ltd [2001] HCA 70; 210 CLR 181, Maggbury had applied for patent rights to a fold away ironing board and engaged with Hafele to investigate options for commercial production and marketing of this product.

Both parties entered into a confidentiality agreement for the purpose of undertaking these negotiations. The agreement bound Hafele indefinitely.

When Maggbury sued Hafele for disclosing information, the High Court held that the agreement created an unlawful restraint of trade on Hafele as the information in question had entered the public domain when the patent was granted, and therefore not confidential.

This case shows the need for a lawyer to provide tailored advice and care in drafting confidentiality agreements.

Let our experienced IP lawyers draft your tailored confidentiality agreement and ensure it meets all the necessary requirements. Request our expert advice below.

What are the risks of not using a confidentiality agreement?

Nobody likes having their ideas stolen. It’s even worse if the person you disclosed your confidential information to goes away and uses it to their own advantage or financial gain.

After a matter in the United Kingdom was heard about a person who misused information obtained in confidence to gain an unfair advantage, this became known as the ‘springboard principle’ – Terrapin Limited v Builder’s Supply Company (Hayes) Limited [1967] RPC 375. Without a Confidentiality Agreement, it may be difficult to prove that the information which was taken was of a confidential nature or originated from you.

That is, it’s difficult if not impossible to assert a breach of confidentiality if you don’t have something very clear and in writing, agreed prior to the breach.

We have been approached by many individuals and businesses in the past who have lost their competitive advantage or suffered damage to their business because confidential information was disclosed or leaked.

In most of the circumstances, a lot depends on whether they had a very robust confidentiality agreement or deed of confidentiality in place and the specific wording of that, including definitions, purpose and the relevant parties.

Many that have approached us had inferior documents in place thinking that they would be covered, when unfortunately the “devil was in the detail” and the relevant section wasn’t clear enough and had the appropriate wording to cover them.

What if my confidentiality agreement is being breached?

The answer to this will partially come down to the wording in your Confidentiality Agreement. Once signed, the document will be a binding contract. In some cases, it may specify what happens on breach. There may also be indemnities which will be relevant if they breach the agreement and suffer losses.

Firstly, you should first contact a lawyer immediately to write to the disclosing party and put them on notice that they have breached the agreement.

This can be done by way of a cease and desist letter or similar. For a serious breach, you lawyer may even recommend that you file for an urgent injunction in Court to stop the disclosure.

If you have suffered actual loss from the breach, you should speak to a lawyer about the prospects of potentially bringing litigation proceedings against the party who breached the agreement in Court.

Key Takeaways

A well-drafted confidentiality agreement is your business’s shield in the competitive arena. Understanding its nuances, adhering to legal considerations, and seeking professional advice ensure that your intellectual property remains safeguarded, fostering trust and longevity in your business relationships.

When it comes to protecting your ideas, an ounce of prevention is indeed worth a pound of cure. At Progressive Legal, our team of experienced IP lawyers will ensure to draft a tailored confidentiality agreement that satisfies legal requirements and safeguards your business. Get in touch with us via phone at 1800 820 083 or request our advice below.

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