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WHICH CONFIDENTIALITY AGREEMENT DO I CHOOSE?

Got a great idea? Must tell someone? But, unsure how to protect yourself? Conclude a confidentiality agreement … without making any mistakes.

Whether you intend to make a new product, market and sell your idea, or just “bounce an invention off” a few people before filing a patent, “secret information” must often be disclosed in terms of confidentiality agreements.

Confidentiality agreements are sometimes used to preserve rights to file a patent. However, more often than not, they are relied upon to protect valuable information that falls outside the scope of legislative protection – patents, designs, copyright and trademarks. Just because your idea is not patentable doesn’t mean you cannot protect it. Consider the Coke formula. It is not patentable. Even if it was, patent protection would have lasted only 20 years. However, Coke has managed to maintain the formula secret and reap the financial benefits since 1886! by using confidentiality agreements and internal systems that maintain secret information, well … secret.

“Secret information” is not an asset, protected by law. If you develop a new formula for a drink, sell the drink, which is then analysed to “reverse engineer” the formula – think Virgin Coke, No-Name Coke, Pepsi - even if others end up with the exact same formula, there is nothing you can do. Nothing! No-one did nothing wrong and the information itself is not protected by law.

Generally speaking, secret information that is not patented can be used by other people unless the information:

is obtained unlawfully (e.g. copied without authorisation by your secretary, or stolen from your offices) AND used to compete with you; or
is used in breach of a contractual obligation to maintain the information confidential (i.e. a confidentiality agreement).

Even where a confidentiality agreement has been signed, it is unenforceable unless the information disclosed (and protected thereby) is in fact secret. For instance: suppose that you came across a fantastic new toy during a recent visit to Dubai. No-one in South Africa has ever seen the toy, so you describe it to a local toy maker subject to undertakings of confidentiality. Since the information was not secret, it does not constitute “confidential information” and, despite conclusion of the confidentiality agreement, the toy maker may make the toy without paying you a royalty.

A typical confidentiality agreement includes the following:

General description of the secret information, preferably referring to a document that contains the information. However, do not attach the document to the agreement, as you do not wish to disclose the information to the recipient before signature.
Restrictions relating to disclosure of the secret information
Restrictions relating to use of the secret information (this restriction is often omitted)
A clause that defines certain information that falls outside the scope of the agreement, for example:

(a) Information that is within the public domain as at the signature date;

(b) Information that falls within the public domain after the signature date, provided that such release was not due to disclosures by or actions of the recipient;

(c) Information that was within the possession of the recipient prior to the signature date; and

(d) Information that is disclosed to the recipient subsequent to the signature date by a third party not subject to obligations of confidentiality in favour of the discloser.

Note: Naturally, the recipient would prefer to include as many of the “exclusions” as possible (and make the agreement “pro-recipient”), whereas the discloser would prefer to limit the number (and render the agreement “pro-discloser”).

A termination clause that terminates the obligations of confidentiality on a specific date, typically the fifth anniversary of the signature date. As a general rule, do not sign confidentiality agreements that remain in force in perpetuity.

If the confidentiality clause is included as part of a broader agreement (e.g. supply agreement, licence), ensure that the clause survives cancellation or termination of the broader agreement.

Fortunately, if you intend to patent the idea, the process can be simplified. However, first conduct a patent search to confirm that the invention is in fact “new” / “novel” and therefore patentable (See MyPatent's search tools). Although any public disclosure prior to filing a patent application will destroy the novelty of your invention, s26 of our Patents Act does protect the applicant against unauthorised disclosures by third parties. For instance, if: you disclosed the invention to a toolmaker in terms of a confidentiality agreement; and the toolmaker makes unauthorised public disclosures, your right to file a patent will be preserved, provided that you “applied for and obtained [patent] protection for [your] invention with all reasonable diligence after learning of the [unauthorized] disclosure, use or knowledge.” As such, a confidentiality agreement concluded in anticipation of filing a patent need not be “watertight” - its main purpose is to protect your right to patent, which patent (and not the confidentiality agreement) will ultimately be relied upon to enforce your rights.

A series of nine “easy to use” template confidentiality agreements is available at MyPatent, with each template having been tailored for a specific purpose:

Reciprocal confidentiality undertaking – use this version where both parties will disclose information to each other. It is a well balanced, neutral agreement.

Confidentiality undertaking by employee – This version imposes obligations of confidentiality upon the employee only. Ensure that it is signed before the employee starts work.

Confidentiality undertaking by employee, signed after engagement or prior to termination – as above, but this version may be signed after the employee has commenced work. You can also use this version in anticipation of termination of the employee’s employment.

Unilateral contractor’s confidentiality undertaking (formal, in favour of discloser) – use this version where a contractor will have access to confidential information (e.g. site visit, etc). It is somewhat in favour of the discloser.

Unilateral contractor’s confidentiality undertaking (formal, in favour of recipient, patent pending) – use this version where a person wishes to disclose a new idea that he intends to patent. It imposes as few obligations upon the recipient as possible, while protecting the discloser’s rights to patent his invention

Unilateral confidentiality undertaking (formal, in favour of recipient) – use this version where a person wishes to disclose secret information to you.

Unilateral confidentiality undertaking (formal, in favour of discloser) – use this version where you wish to disclose secret information.

Unilateral confidentiality undertaking (formal, for evaluation) – use this version where you are disclosing secret information for evaluation only.

Confidentiality letter (informal, for evaluation) – use this version where you are disclosing secret information for evaluation only and wish to keep the recipient’s lawyers out of the process. It is drafted in the form of a letter, which typically puts business people at ease.

A drawback of this form of protection is that should the confidential information find its way into the public domain, the discloser would need to prove that the leak originated from a disclosure by the recipient – not an easy onus to discharge on a balance of probabilities. And, when in the public domain, the game is typically up.

Anthony van Zantwijk

Sibanda & Zantwijk Attorneys

September 2008

Published in Your Business August / September 2008

Last Updated ( Tuesday, 23 June 2009 )