Defining Confidential Information
It is often to the advantage of the discloser to define “Confidential Information” as broadly as possible. A broad definition gives the discloser comfort that it didn’t mistakenly leave something out that it meant for the recipient to keep confidential. In extreme cases, a discloser might define Confidential Information essentially as any information the recipient acquires that relates to the discloser.
Confidential Information means all information, written or oral, disclosed directly or indirectly by the disclosing party or by any of its affiliates or representatives, through any means of communication, including by observation of the recipient.
The scope of this language is sweeping, to say the least. The extent of the recipient’s obligations are unknown, since Confidential Information could mean virtually anything. The recipient would instead prefer to define Confidential Information like this–
Confidential Information means the report entitled “XYZ Corp. Business Plan,” as delivered by Discloser to Recipient upon the execution of this Agreement.
Or something equally specific. This language gives the recipient the advantage of knowing exactly what it is supposed to treat as confidential. On the other hand, the definition is inflexible. If the parties wanted to extend the protections of this agreement to other confidential information, they would have to formally amend the agreement or draft a new one.
Aside from the general rule that the discloser would prefer a broad definition and the recipient a narrow one, the parties must try to strike a balance in arriving at a definition that is specific enough to be useful, but not so specific that new information can’t be added to it without having to sign another document.
Defining Confidential Information by Markings
The parties may define Confidential Information by reference to markings, legends or notices that appear on copies of the Confidential Information. The idea is that if a party wants something to be treated confidentially, it will make the effort to mark it in some way. In practice this means putting the word “Confidential” in the footer of documents or stamping it in ink or with a watermark. This process is helpful to the recipient, since he or she will be able to tell at a glance and with certainty whether something is meant to be confidential. An example of defining Confidential Information by markings is–
“Confidential Information” means any information, disclosed by either party to the other, whether (i) in writing, provided that such information is clearly and conspicuously marked as proprietary or confidential or (ii) orally or in other intangible form, provided that such oral information is designated as proprietary or confidential at the time of disclosure and this is confirmed by the furnishing party in writing within thirty (30) days after disclosure.
This language lays out a trap for the discloser, however. By shifting the essence of the definition away from the nature of the information and toward a somewhat arbitrary physical characteristic, the discloser is burdened with having to make sure that every item of information is conspicuously marked. Few disclosers are so diligent, even with respect to important documents, and almost never with respect to email, correspondence, and other less obviously important documents. What the language does is set up the possibility of a “gotcha,” where information that is obviously confidential, such as merger discussions, might lose that treatment, just because someone forgot to mark a piece of paper. This is dangerous.
And then there’s the problem of marking information that is not so easily marked. How do you mark a telephone conversation in which confidential information is disclosed? The language tries to solve this problem by directing the discloser to confirm in writing the confidential nature of any oral statements. I have always found this language to be charmingly naive. This never happens. Business people are not so fastidious as to log their conversations and feverishly document them so as to confirm their confidential nature in writing after the fact. Lawyers don’t do this either.
And it’s not just limited to oral disclosures. Confidential Information might take the form of a prototype product, or it might be the information disclosed visually to a visitor who takes a tour of a sensitive location. How do you mark those kinds of information? It raises too many problems.
Defining Confidential Information by Exhaustion
The goal of defining Confidential Information by exhaustion is to list every conceivable category of information that is judged worthy of confidentiality. It is flexible enough to accommodate a changing body of confidential information. Like this–
“Confidential Information” means any trade secret, know-how, invention, software program, application, documentation, schematic, procedure, contract, information, knowledge, data, process, technique, design, drawing, program, formula or test data, work in progress, engineering, manufacturing, marketing, financial, sales, supplier, customer, employee, investor, or business information, whether in oral, written, graphic or electronic form.
The biggest problem with this approach is knowing when to stop. Depending on the level of detail, the list of categories could go on for pages. At some point, adding new categories will stop improving the definition, and only make it harder to read. And there is a danger in being too prolific with the categories. If the confidentiality of a certain piece of information is ever in question, and the information is of a kind that doesn’t quite fit into any of the named categories, a court might reasonably infer that it was not meant to be confidential, given the great effort the parties expended in listing the categories of information that were meant to be covered.
Defining Confidential Information by Reasonableness
The third option for defining confidential information is to summon a shadowy but very helpful adjudicator of confidential information, the “reasonable person.” The great skill of the reasonable person is knowing, in advance and with infallible precision, what kinds of information ought to be confidential. Here is the the reasonable person in action.
“Confidential Information” means any information that, under the circumstances surrounding disclosure, a reasonable person would regard as confidential.
You might think that this language is just a punt, that it defers a real discussion of what confidentiality is until some future date, when the parties get to speculate about what a reasonable person would do under a given set of facts. But a punt can be useful. It sets out some boundaries, albeit hazy ones, and sensibly pushes off resolution of more difficult issues to some future date that will probably never come. In other words, the reasonable person is an expedient, one that’s very helpful when the information being disclosed isn’t terribly sensitive. You are most likely to see this kind of definition covering general business discussions, and much less likely when one party will be disclosing an identifiable trade secret.
All materials and information disclosed by either party to the other will be presumed to be Confidential Information and will be so regarded by the recipient, unless the recipient can prove that the materials or information are not Confidential Information.
- Parts of a Nondisclosure Agreement
- Defining Confidential Information
- Exclusions from the Definition of Confidential Information
- Duty to Protect
- Duty Not to Misuse
- Duty Not to Disclose
- Compelled Disclosure
- Duty to Notify and Mitigate
- Periods of Disclosure and Obligation
- Return of Confidential Information
- Disclaimer of Warranties
- Equitable Relief
- Ownership and License