Mark Grossman
About Confidentiality Agreements
Tech Law
April / May 2005
Volume 3 Number 2
As a tech lawyer, I get many phone calls like this: "Tomorrow I'm meeting with Stan Stranger. He called me out of the blue. I don't know who he is or how serious he might be about licensing my product. Please send me a confidentiality agreement for him to sign before our meeting tomorrow."
While my real-life response might be gentler, the non-diplomatic version goes something like this: "Let me get this right. You're meeting with a stranger tomorrow. You know nothing about him, but you think that if I give you a piece a paper for him to sign, you think that it will be okay for you to reveal your trade secrets to him in a preliminary meeting."
No!
I'm a big advocate of having no confidentiality agreement in place during preliminary meetings. I like to advise my clients that during preliminary meetings, they should never reveal confidential information. I feel that it's better to wait until a potential deal looks like a real possibility. Further, the confidentiality agreement should come only after they've done some due diligence on the other side.
Of course, this is general advice and may not apply to your situation. It may very much make sense to enter into a confidentiality agreement for a first meeting. However, I think that situation is the exception, not the norm.
What really needs to be done before a first meeting is to thoughtfully discuss the timing for a confidentiality agreement. Here is one definition of confidential information I used in a random agreement I found in my archive. Let's use it as a springboard for discussion.
"Confidential Information" shall mean all information that is labeled Confidential—€š by the party disclosing such information, as well as all information, regardless of its labeling, that is exchanged between the parties (regardless of form or format) relating to the [the business at hand] and related designs, agreements, prospectuses, proposals, advertising/promotional material, customer lists, files (both physical and virtual), drafts, books, logs, charts, records, studies, reports, schedules, plans, statistical information, and all intellectual property of every kind and nature that is furnished or disclosed by one party to the other, regardless of the means or location of disclosure. Confidential Information shall not include information which (i) is or becomes (through no improper action or inaction by the receiving party or its affiliates, agents, consultants or employees) generally available to the public, or (ii) was in the receiving party's possession or known by it prior to receipt from the disclosing party, or (iii) was rightfully disclosed to the receiving party by a third party who is not subject to a non-disclosure agreement with the disclosing party or (iv) was independently developed by the receiving party without use of any information of the disclosing party."
"Confidential Information" shall mean all information that is labeled Confidential—€š by the party disclosing such information." Seems like an open-ended standard that you might want to limit. I think that "[A]ll information that is labeled Confidential—€š" gives the other side lots of discretion to make almost anything "confidential." Of course, you might be the one taking advantage of this broadness so it might help you.
Is there more potential for this broad language to help or hurt you? Now that I've said this is broad, I must point out that it's limited a bit by what follows. "[R]elating to the [the business at hand]" does limit the broadness of the phrase that precedes it, but still, this is a broad definition. Moreover, then comes the cute part of trying to define the blank, which is the "business at hand." Can you define the"thing" that you are discussing that is the subject of this agreement? Trust me when I say that sometimes it's easier said than done.
The next phrase to look at is "related designs, agreements, prospectuses, proposals, advertising /promotional material, customer lists, files (both physical and virtual), drafts, books, logs, charts, records, studies, reports, schedules, plans, statistical information, and all intellectual property of every kind and nature that is furnished or disclosed by one party to the other, regardless of the means or location of disclosure."During the drafting process, I like to look at lists like this critically. Just because it's in my template doesn't make it right for every deal. I might want to add or subtract words from the list for your deal. Again, the process is a thoughtful one. This is not a fill-in-the-blank form.
One thing I might want to do is narrow this depending on what side of the deal you are on. A phrase like "and all intellectual property of every kind and nature that is furnished or disclosed by one party to the other, regardless of the means or location of disclosure" could be dangerously broad. Conceivably, broad language like this could be used as a weapon against you if the other side claims you stole their intellectual property.
The final part of this provision is somewhat standard:
"Confidential Information shall not include information which (i) is or becomes (through no improper action or inaction by the receiving party or its affiliates, agents, consultants or employees) generally available to the public, or (ii) was in the receiving party's possession or known by it prior to receipt from the disclosing party, or (iii) was rightfuly disclosed to the receiving party by a third party who is not subject to a non-disclosure agreement with the disclosing party or (iv) was independently developed by the receiving party without use of any information of the disclosing party."Having said that it's somewhat standard doesn't mean that I won't read it critically to see how it might apply to the deal at hand. However, for the most part, language like this is usually acceptable to both sides.
Mark Grossman—€š is an attorney specializing in technology law at DeWitt Grossman, P.L., Miami. If you have any comments, please send them to mgrossman@dewittgrossman.com.
Disclaimer: The advice given in this column should not be considered legal advice. This column only provides general educational information. © 2005 Mark Grossman.
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