It is vital for a business to protect its commercially sensitive information as if it is not sufficiently protected, other parties may seek to exploit it causing irreparable damage from which a business may not be able to recover. While certain types of information can be protected by intellectual property rights such as patents or copyright, this article will focus on the law of confidentiality which has developed through the common law in the UK.
It is a broad principle of law that a person who has received information in confidence cannot take unfair advantage of it. That person must not make use of it to the prejudice of the person who gave the information without first obtaining their consent. To be protected by the law of confidential information, information must be:
- Confidential in nature, meaning that it must have the “necessary quality of confidence”.
- Disclosed in circumstances importing an obligation of confidence.
Case law has recognised that to have the necessary quality of confidence, information must not be something which is public property and public knowledge. In many cases, it is clear whether the information is confidential although simply describing or labelling information as confidential will not in itself turn information which is fundamentally not confidential into confidential information.
An obligation to keep information confidential may be imposed by a contract, implied because of the circumstances of disclosure, or implied because of the special relationship between the parties concerned (e.g. that of employer and employee).
It is not unusual for a business to want or need to disclose their confidential information to someone else. For example, where two parties are considering working together, quite often they will want to exchange confidential information with each other so that they can both assess whether the proposal will work. Or in the context of a business sale, the buyer will want the seller to disclose confidential information to it so a proper due diligence process can be followed.
Protecting Confidential Information
The best way of ensuring that information is disclosed in circumstances which impose an obligation of confidence is through a written contract. This avoids any suggestion that the recipient of the information didn’t know the information was confidential and a contractual obligation is generally easier to enforce.
The disclosing party will usually prepare a Confidentiality Agreement or Non-disclosure Agreement (also known as an NDA) but the recipient may sometimes want to prepare the agreement so that they can be sure they won’t be subject to onerous obligations. It is also possible for an NDA to be mutual where both parties are disclosing information to each other and have the same rights.
Some key provisions which an NDA should include are as follows:
- An appropriate definition of confidential information – given the purpose of the NDA is to protect the information being disclosed, it is essential to ensure that the definition is wide enough to cover everything being disclosed, that it includes deliberate or inadvertent disclosure and that any works derived from the information disclosed also comprises confidential information.
- An obligation to keep the information confidential and to use it only for the permitted purpose which should be clearly defined.
- The limited circumstances in which it is permitted for the information to be disclosed, and to whom. Often an NDA will permit disclosure to advisors and employees and will also specifically allow disclosure which is required by law or regulation.
- What happens to the information disclosed if the project or transaction does not proceed. The disclosing party will probably want to ensure that their information is either destroyed or returned.
If you have been given an NDA for review or you want to discuss putting in place an NDA before you disclose your confidential information, then please contact Michael Lam by email at email@example.com or on 0116 402 7240.