You spend a great deal of time and money developing unique ideas, products and services. But the more people who know about your plans, the more you risk losing your secrets. To help protect vital intellectual property assets, it's important to require confidentiality agreements.
Sometimes referred to as "nondisclosure agreements," confidentiality agreements let you talk more freely with suppliers, advisers, customers and employees. It creates a clear understanding that these outsiders won't talk about what's happening inside your company to anyone without your permission.
Confidentiality agreements come in all shapes and sizes: In some cases, they involve a short "catch all" paragraph on the back of a visitor badge or sign-in form. More detailed agreements are also included in employee contracts or handbooks.
Alternatively, one restaurant chain prints a statement on its employee application form. Prospective employees agree that if they're hired, they'll keep the restaurant's recipes a secret.
Confidentiality agreements can even involve a document discussing new ideas or yet-to-be-released products or services. Whatever the format, if your company can prove a violation of a confidentially agreement, they may be entitled to injunctive relief, damages and compensation for lost profits.
Four situations where a confidentiality agreement should be considered include:
Confidentiality agreements are legally enforceable if they are reasonable in scope, duration and geography. They must also document a legitimate business interest — not just general knowledge or skills. If an agreement is violated and you decide to take legal action, your company must show economic hardship.
However, confidentiality agreements aren't foolproof. Generally, the ability to enforce them depends on:
There's an old saying that applies here: "It's too late to close the barn door after the cows have escaped." A confidentiality agreement is an easy, effective way to make sure your employees and other contacts keep your trade secrets, ideas and other information confidential. Contact your financial and legal advisors for more information.
The recipe for an effective confidentiality agreement varies, depending on how it will be used. A manufacturer could use several different formats for different situations. However, in all cases, the agreement should identify the parties involved and include a starting date and length of nondisclosure.
Check with your attorney to ensure that your company's confidentiality agreements meet the relevant legal requirements.
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