The Value of a Confidentiality Agreement

One of the most important developments in the world economy has been the increased importance of ideas and innovation. It is no exaggeration to say that they comprise the predominant source of economic value in the world today. The challenge with ideas and innovations is that they are intangible — and as such, they are hard to protect and even harder to value

Before we continue, it would be good to review what a company’s intangible assets can include. Intangibles can be a company’s brand; its reputation; specific processes and methods to do certain things; employee knowledge that is unique to the company; data collected and analyzed by the company; and many other things. Some of these intangibles can be protected through registered intellectual property (IP) such as patent, trademark or copyright. Others are protected by contract including employee contracts, handbooks, and non-compete agreements. 

The most common such agreement is a confidentiality agreement or non-disclosure agreement (“NDA”). A confidentiality agreement is designed to prevent information (including intangible assets) from being shared in such a way that anyone can use them without the owner’s permission, and in so doing, damage — if not eviscerate — the value of that information for its owner.

A company might encounter an NDA or some sort of confidentiality clauses (as part of a larger agreement) from a counterparty prospectively, for example, because the counterparty is worried that during its interactions with the company the counterparty may share — intentionally or not — confidential information. Alternatively, a company may encounter an NDA because the purpose of the interaction with the counterparty is designed to include the sharing or creation of confidential information whose value would be diminished absent an NDA, or whose release would damage the interests of one or both of the parties to the NDA. Finally, during litigation, a court may enforce a confidentiality arrangement in the form of a protective order or confidentiality club, which functions like a court-enforced NDA and allows the parties to share confidential information knowing that only a limited group of people will be able to see it, and even then under limited conditions.

This article series will cover practical considerations involved in the overall protection of a company’s confidential information including the structuring, drafting, reviewing, and negotiating of general confidentiality agreements in connection with commercial transactions and relationships. Along the way, we will point out special factors relevant to mergers and acquisitions, intellectual property, employment, and litigation. Finally, we will close with an annotated form of NDA. 

Contact me today with questions or comments. 

David L. Cohen

David L. Cohen, P.C. – Kidon IP
123 West 93rd Street
New York, NY 10025
(914) 357-5196