Non-Disclosure Agreements

People may wish to exchange confidential information in a range of commercial situations. The situations include:

* where persons are considering entering into a commercial arrangement;
* where one person is seeking advice from another;
* where persons wish to regulate the use and disclosure of information during a commercial arrangement;
* where persons wish to regulate how they can use or disclose after the end of a commercial arrangement; and
* where parties have been in commercial dispute and they resolve dispute and wish to impose restrictions on what can be said about the dispute and its resolution.

The law has long protected information that is deemed "confidential" from wrongful disclosure. Indeed, confidential information will be protected under the common law without a confidentiality agreement. For more information about the general law of confidential information, see Protection of Confidential Information in Australia. However, there are situations where it is worthwhile entering into a confidentiality agreement.

This lens considers confidentiality agreements in the following three situations:

* the purchase or sale of a business, assets or shares in a company;
* the disclosure of an invention; and
* consortium arrangements.

A common example of a situation in which confidential information is disclosed is the sale of a business, assets or shares.

In this instance, the seller will need to disclose commercially sensitive information to the prospective buyer to allow the buyer to determine whether it would like to make an offer and, ultimately buy the business, assets or shares. If the sale is a conducted pursuant to a tender arrangement, it is usual for the execution of a confidentiality agreement is a pre-condition to the disclosure of any information at all. And in this case, the confidentiality agreement may be one-sided - ie, it imposes obligations only on the buyer as a recipient of commercially sensitive information. Once parties are short-listed or negotiations are held with one or more potential purchases, it is likely that the potential buyers will also disclose commercially sensitive information to the seller and its advisers. For this reason, confidentiality agreements in these sitiuations are often mutual - ie, they impose obligations on both the seller and purchase with respect to the information of the other party.

If the sale is a result of an individual apporach, there may be an exchange of very limited information before the execution of an agreement. However, the agreement should be put in place as soon as possible. In this situation, the confidentiality agreement will also be mutual.

There are advantages in putting in place a confidentiality agreement. These advantages include:
* Clearly describing and identifying which classes of information ot documents are considered to be confidential.
* Clearly describing the nature of the confidentiality obligation. Does a recipient of confidential information have the right to disclose that information to a colleague/employee within the same company? Does the recipient of the information have the right to disclose the confidential information to an employee of a subsidiary or parent company? Does the recipient have the right to disclose the confidential information to a professional adviser such as a lawyer, insurer or specialist consultant?
* Restricting the use of confidential information to a particular purpose. Typically aconfidentiality agreement also provides a restriction on the purpose for which the confidentiality information can be used.
* Providing additional rights, protections and remedies. A confidentiality agreement also typically provides for: the return or destruction of the confidential information at the end of the term of the agreement or on demand; issues such as privacy and publicity; and the basis of claiming damages and the consequences of breach of the non-disclosure arrangements.
* Specifying the length of the confidentiality obligation. At general law, information can be confidential indefinitely if the information does not enter into the public domain. In an agreement, it is common to specify an end date for the confidentiality obligation. The end date will depend on the type of information which is disclosed.

An inventor will usually require assistance to commercialise their invention. Therefore, it will usually be necessary for the inventor to disclose confidential information about his or her invention. Any disclosure of information should be undertaken only following the execution of a confidentiality agreement for a number of reasons.

The first reason that a confidentiality agreement is importantin relation to inventions is that disclosure of confidential information may prevent the granting of a patent in respect of the invention. In very simpe terms, a patent will only be granted if an invention is sufficiently novel and had not been disclosed previously except in circumstances which are covered by confidentiality arrangements. In other words, a disclosure pursuant to a confidentiality agreement does not constitute a disclosure which would prevent the granting of a patent. For more information about patents, see An Outline of Australian Patent Law.

The second reason that a confidentiality agreement is important in relation to inventions is that an invention may not be eligible for patent protection but may still be significant and capable of generating significant commercial value when exploited. Also, an inventor may choose not to apply for a patent because the inventor may not be able to fund the patent application process or the inventor may consider that invention may have a life span that is longer than the monoply period given by the patent. The potential life span of the invention is an important issue as once granted, the details of the patent are in the public domain and any person would be free to use the invention on expiry of the monopoly period given patent. Some prominent companies have opted to protect their products and processes via confidentiality arrangements instead of applying for a patent. One famous example is Coca Cola - the formula is suppodely kept under lock and key and licensees and bottlers are subject to extensive confidentiality obligations.

Many infrastructure and other projects involving the development, delivery and operation of an asset are complex and cannot be delivered by one supplier alone. Therefore, suppliers enter into arrangements with each other to deliver projects. In these arrangements, one party will typically be primarily responsible for the overall bid preparation, contract negotiation and delivery with other suppliers being responsible for aspects of the project. The precise scope of the arrangements put in place will depend on the type of project, the customer, the corporate and business structures of the suppliers and a reisk assessment of the project.

Teaming agreements set out the roles, responsibilities and obligations of a prime contractor and the sub-contractors during the process of the parties working together in preparation for a tender response and until the tender is finalised and a contract is negotiated with the customer. There are four key aspects to a teaming agreement:
* clauses which deal with confidentiality and the exchange and disclosure of confidential information;
* a description of the roles and responsibilities of the parties working together to submit a tender response;
* a description of the commercial relationships between the parties during the bid process and during the post-tender response submission process; and
* clauses setting out the basis of pricing and contract terms between the parties.

When putting in place a teaming agreement, it is important to consider the following issues:
* which party will be the prime contractor and which party will be the sub-contractor.
* whether the prime contractor is entitled to work with multiple competing sub contractors;
* whether a sub-contractor is entitled to work with multiple competing prime contractors, or indeed can the sub-contractor submit a bid in its own name;
* the extent to which the terms and conditions of the prime contract are to be flowed through to the sub-contractors and what prices the sub-contractor will charge the prime contractor for the sub-contractor's goods and services; and
* the circumstances under which can the teaming agreement be terminated.

Once the contract is negotiated (or sometimes during the negotiation), the suppliers will enter into a formal project contract which supersedes the teaming agreement.