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Confidentiality Clauses in San Diego Business Contracts (Part I)
It is not uncommon to find confidentiality clauses in business contracts. Such clauses come in two varieties – confidentiality with respect the agreement itself and/or the contents of the agreement, and confidentiality with respect to commercial information and trade secrets that are going to be disclosed as part of due diligence or for other reasons. These clauses can be daunting. A trusted and experienced corporate lawyer can help. In this article, we discuss the first type — confidentiality of agreement clauses.
San Diego Corporate Law: What is a Confidentiality of Agreement Clause?
At its most simple, a confidentiality of agreement clause is a contractual agreement that the parties will not disclose to third parties the existence and/or content of the agreement. In general, a confidentiality clause will specify three things:
- What is confidential,
- Who is bound by the confidentiality,
- Exceptions,
- Penalties for breach.
A very simple example might be a provision in a contract like this:
“Confidentiality. I acknowledge and agree that the terms and existence of this Agreement are strictly confidential and may not be disclosed to anyone except my lawyer, financial consultant or tax advisor.”
Here, the WHAT is both the existence and terms of the agreement — two different things. With respect to the WHO, some confidentiality clauses will attempt to extend the non-disclosure requirement to those persons listed as exceptions. Language might read something like this: “…may not be disclosed to anyone except my lawyer … who shall, prior to this Agreement and its contents being disclosed, be made aware of, and shall acknowledge and shall agree to be bound by the confidentiality provisions hereof.”
With respect to the EXCEPTIONS, depending on the circumstances and facts, aside from legal, tax, and financial advisors, there are others who may need to know about the agreement and its contents, including:
- Officers, directors, agents or employees if corporate entities are involved
- Family members
- Experts like engineers or architects
- Disclosure “as required by law”
- Disclosure “as required by a lawful subpoena”
- And similar
San Diego Corporate Law: Confidentiality of Agreement Clauses With Penalty Provisions
As noted, some confidentiality clauses contain their own penalty provisions. Here is an example from a commercial lease:
“Confidentiality. Tenant acknowledges that the content of this Lease and any related documents are confidential information. Tenant shall keep such confidential information strictly confidential and shall not disclose such confidential information to any person or entity other than Tenants financial, legal, and space planning consultants. Disclosure shall be a breach of this Lease and, in the event of disclosure, Landlord may elect to revoke this lease, seek damages, plus interest and reasonable attorneys’ fees, and take any other lawful actions to enforce this Lease and the Landlord’s rights.”
San Diego Corporate Law: Why Use Confidentiality of Agreement Clause?
In general, there are two circumstances in which you might want to use a confidentiality of agreement clause. First, as with the commercial lease example, you do not want it generally known at what rate and on what terms you are willing to lease your property. As another example, if you sell certain products but give very different prices and rates to various customers, you want to keep such variable pricing strategies confidential. Thus, you would add confidentiality clauses to your vendor/sales agreements.
The second common use of confidentiality clauses is with respect to releases of potential and actual litigation. Under those circumstances, the underlying facts might be commercially or personally embarrassing and hotly disputed. As such, a confidentiality clause will help prevent further disclosure to the media.
Contact San Diego Corporate Law Today
If you would like more information about confidentiality clauses, contact attorney Michael Leonard, Esq., of San Diego Corporate Law. Mr. Leonard has the experience to help draft and review any sort of business contract or agreement needed by your San Diego business. Mr. Leonard has been named a “Rising Star” three years running by SuperLawyers.com and “Best of the Bar” by the San Diego Business Journal. Mr. Leonard can be reached at (858) 483-9200 or via email.
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