How to Write a Confidentiality Agreement

Confidentiality agreements are used in many contexts. Perhaps you've hired or contracted someone to work for you and worry about the security of your client lists and proprietary processes. On the other hand, you may have a computer program or other invention that you need to share with others so you can get necessary funding or distribution, but you want to ensure that investors won't steal your design or destroy your patent rights. Regardless of your reason, if you have information you don't need to disclose to the general public, you could use a confidentiality agreement.^{[1]XResearch source} If someone shares your secret information after signing a confidentiality agreement, you can sue for a court order to stop them and have them pay monetary damages for the breach.^{[2]XResearch source}

Part 1

Part 1 of 2:

Outlining the Confidential Relationship

1
Use standard contract format. Write in single-spaced paragraphs with a double space between them. Number your paragraphs.
- Each paragraph constitutes a separate term of your contract.
- If you have any sub-paragraphs, indent them under the main paragraph and mark them with a letter, as though you were writing an outline. For example, you may want to follow a main paragraph discussing types of information to be kept confidential with sub-paragraphs listing specific examples.
2
Decide whether the confidential relationship established will be mutual or one-way. There are two types of confidentiality or non-disclosure agreements, one with responsibilities for both parties and the other with responsibilities for only one party.
- Mutual confidentiality agreements are necessary when you're providing information to a company so they can provide you with something secret in return. For example, you may be disclosing your plans for a secret invention to a professional who will help you devise a marketing plan.
- You need a one-way confidentiality agreement if you need to share confidential information with an employee or contractor who will not be sharing secrets of their own, simply doing work for you.
- You'd also use a one-way agreement if you were seeking investors, as long as those investors were only providing financing for your project and not any business advice or strategy.^{[3]XResearch source}
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3
Identify the parties to the agreement. Everyone who might have access to the confidential information must be listed, otherwise the agreement won't bind them.
- For example, if the agreement is between two companies, the CEO of the company may be able to sign for her entire company, but the agreement should also specify that all employees of the company who have access to the information are bound by its provisions.
- Parties can be identified by referring to classes of people, such as “employees” or “engineers,” as long as the person signing the agreement has the authority to bind those people.
- Unless the agreement forbids a contractor to have a subcontractor assist with the work, all subcontractors should be included as parties to the agreement as well.
4
Define what information will be kept confidential. The types of information you wish to keep confidential can include any sort of information that might be exchanged between the parties. ^{[4]XResearch source}
- For example, if you're designing a mobile app, you might include not only the code and design of the app itself, but also any prototypes, testing procedures and results, or reviews and comments from alpha or beta testers.
- This portion of the agreement is designed to set the boundaries of confidential information without disclosing the information itself. For example, your agreement may list “all client lists” as confidential, but does not have to disclose the content of those lists.^{[5]XResearch source}
5
List information excluded from confidentiality. This isn't typically a list of specific things, but broad categories of information that don't have to be protected as confidential. Most of these categories are created by law.
- For example, information that was public knowledge will never be considered confidential information. Likewise, information that the receiving party learns from a third party or of which they had prior knowledge cannot be considered confidential for the purposes of a confidentiality agreement. ^{[6]XResearch source}
- One of the most important exclusions is that if the receiver creates something independently before entering the confidential relationship, it cannot be considered party of the confidentiality agreement even if it happens to use or include some of the same or similar secret information or processes.^{[7]XResearch source}
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Part 2

Part 2 of 2:

Setting the Terms of the Agreement

1
Establish the duties and obligations of the party receiving the confidential information. Confidentiality agreements typically limit the ways the receiving party can use the confidential information provided, as well as provide the standard for keeping and protecting confidential information.
- For example, if you're looking for investor evaluations of something you've invented, your confidentiality agreement may specify that the information can only be used for the purposes of evaluating the product and not in the evaluator's own business.
- If you're having an employee or contractor sign a confidentiality agreement, you would probably want to limit your employee's use of information to the performance of job duties directly related to the employment.
- Many confidentiality agreements recite that receivers must keep the information disclosed to them in the same way they would keep their own confidential information. However, this statement only works if the receiving party has a known policy for handling confidential information.
- Generally, confidentiality standards include limiting access to the information and taking basic precautions to keep the information secure so it doesn't easily fall into outside hands. Such precautions might include, for example, using encryption for emails discussing the confidential information.
- If your confidentiality agreement relates to software designs, inventions or technology, it should include a statement that the receiver of the information has no license, expressed or implied, in the information by virtue of its disclosure. ^{[8]XResearch source}
- Most state laws hold that, at a minimum, the receiver has the duty not to breach confidentiality or induce others to breach it.^{[9]XResearch source}
2
Specify the time period during which the agreement will be valid and enforceable. Your agreement should specify two time periods: the period during which disclosure will be made, and the time period thereafter during which the information should be kept confidential.
- American confidentiality agreements typically last for a period of five years, although some may only last two or three years.^{[10]XResearch source}
- The end point doesn't have to be a specific date, but there should be a specific date used as a starting point. Otherwise it's unclear when the agreement will take effect and for how long it will be enforceable.
- If your agreement specifies a confidentiality period of two years, for example, but fails to establish when that two year period starts, the receiver of the information can argue that she didn't believe the agreement had gone into effect yet.^{[11]XResearch source}
- Another way to set a specific starting date is to have the confidentiality period start from the date the agreement is signed.^{[12]XResearch source} If you use this method, make sure you don't disclose any secrets until you have the signature and the agreement is in force.
- The confidentiality time period also may end when a certain event happens. For example, if you're seeking evaluation of a new product, the confidentiality period may end when you market and distribute that product in stores.^{[13]XResearch source}
3
Set forth legal ramifications or penalties for breach of the agreement. Some confidentiality agreements include stiff financial penalties if secret information is revealed to the general public. Others leave the consequences up to a judge or arbitrator to decide.
- You can sue for an injunction -- a court order to stop the person who breached confidentiality from continuing to share the information in violation of the agreement.^{[14]XResearch source}
- You also have the ability to sue for damages incurred as a result of the breach of confidentiality, which may include penalties. For example, in some states you may have the ability to get double or triple damages if the breach was intentional rather than accidental.
- How detailed you want to get with penalties generally relates to how unique the information being disclosed is, and how damaging it would be if it got out.
- The more difficult something is to value, the more likely there is to be a clause listing a specific dollar amount in damages for breach. If both parties agree the information is worth this amount, the issue isn't left up to the discretion of a judge.
Sometimes called “boilerplate,” all agreements contain various clauses that don't fit in any other section, such as which state's law will apply and whether attorneys' fees will be available to an injured party if they agreement is breached.^{[15]XResearch source}
Both parties must sign the agreement before it can be considered valid.
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