Non-disclosure agreements (NDAs) have become instrumental tools for protecting confidential information. However, understanding what can be considered “confidential information” under an NDA is sometimes not as easy as it may seem. What does “confidential information” mean, and why is it essential to distinguish it?
Our guide explores the broad spectrum of confidential information that an NDA can cover, provides examples and case studies, and demystifies what doesn’t fall into the “confidential” category.
Key Takeaways
- Confidential information can be shared between parties for specific purposes and take various forms
- Even without an NDA, information can be considered confidential by nature or through certain circumstances or relationships
- NDAs don’t protect illegal actions, and those who report such activities to law enforcement usually don’t face repercussions
- Knowing what is legally considered confidential in an NDA protects all parties from potential risks and liabilities
What Is Confidential Information?
Confidential information generally refers to sensitive information intended to remain secret and not be disclosed to unauthorized individuals or entities.
When one party (the disclosing party) shares confidential information with the other (the receiving party), it’s typically done with a specific intention or common objective.
Confidential information can take various forms – verbal communication, written documents, observed processes, or electronically transmitted files. Examples of confidential information include:
- A company’s future merger plans are discussed between a manager and a key employee;
- Documents containing proprietary formulas for a new product line;
- A unique manufacturing process observed by an employee visiting a company’s plant;
- An email containing sensitive financial statements (i.e., sales reports) sent to an authorized employee.
Confidentiality vs. Privacy
Confidentiality refers to the duty not to disclose certain information without permission to third parties, often arising from a contract or business relationship.
Privacy, however, is the right to keep personal details out of the public eye, protected by law against unwarranted intrusion. While both involve information, confidentiality deals with the obligation to protect it, while privacy concerns an individual’s right to control their access.
What CAN Be Considered Confidential Information
Various kinds of information can be covered as confidential information by an NDA. Some of them include:
- Business Strategies and Methods: Marketing plans, advertising strategies, product launch announcements, and other business information;
- Designs and Specifications: Blueprints, drawings, and documents for machines, buildings, products, inventions, and patent applications;
- Digital Assets: Source code, algorithms, proprietary software applications, and any unique software techniques or technical methods;
- Formulas: Chemical compositions, recipes for food and drink products (i.e., ingredients that give Coca-Cola its distinct taste);
- Physical Devices: Machines, objects, devices, and hardware configurations, as well as prototypes or samples;
- Processes: Manufacturing, chemical, and engineering processes;
- Vendor & Customer Lists: Contact lists of suppliers and customers, purchasing histories, pricing agreements, and customer preferences.
Confidential information in an NDA should be defined elaborately to align with the scope and purpose of the agreement.
For example, “confidential information” may concern the design, specifications, and manufacturing process of a newly invented electronic device in an invention NDA. In the case of an interview, an interviewer may define information related to discussions on company strategies and proprietary processes as confidential information.
Confidential information without an NDA?
It’s important to note that information can still be considered confidential without a non-disclosure agreement.
Some information is confidential, meaning that the information isn’t public knowledge, was created with ingenuity, and carries the “necessary quality of confidence.”
Confidential information includes trade secrets and proprietary information of any form.
Information can also be deemed confidential by implication. This generally happens in the context of an NDA or a similar legally binding contract.
Yet, it can also arise from specific disclosure circumstances or from certain special relationships between parties, such as between an employer and an employee.
What CAN NOT Be Considered Confidential Information
Instances in which information disclosed can’t be deemed confidential include:
- Public knowledge: Information that is already in the public domain, like on the Internet (i.e., the location of Apple headquarters)
- Prior Knowledge: Information each party already knows before entering the NDA (i.e., the name of a new project the parties will work together for)
- Independent Development: Information independently developed by each party (including information obtained through reverse engineering if there is proof)
- Permitted Disclosure: The NDA can permit the receiving party to disclose information to certain third parties (i.e., CPAs or attorneys)
- Compelled Disclosure: When a court order or government agency requires the disclosure of information (i.e., testifying against a crime)
Do NDAs Protect Crimes?
No, NDAs cannot legally protect crimes. While NDAs have been misused to silence victims or witnesses of illegal activities, common law dictates that criminal acts are not protected under NDAs. Additionally, failing to report known misconduct could lead to legal consequences.
The Importance of Distinguishing Confidential Information
Understanding what can be legally defined as confidential information in an NDA is crucial for both the disclosing and receiving parties.
As the disclosing party in an NDA, you must be aware of the information that can (and can’t) be safeguarded under the law or an NDA. This knowledge allows you to uphold your rights and ward off situations that may render your NDA unenforceable.
Conversely, as the receiving party in an NDA, knowing what qualifies as confidential information helps prevent accidental breaches, which could bring serious consequences, including legal liabilities and criminal charges.
If you are still not sure whether to cover certain information in your NDA as confidential, try to answer the questions below:
- Does the information reflect originality and ingenuity?
- Is the information difficult to obtain or copy?
- Does the information have commercial value to your business/other businesses?
- Would disclosure of this information potentially harm your business or benefit a competitor?
- Is the information exclusive and inaccessible to the public?
- Are there security measures to protect the information?
The more yeses you have for the information, the more likely it should be considered confidential.
How the Court Sees It: A Case Study
Understanding what counts as confidential information can be complex, particularly in implied situations where interpretation often lies in the hands of the courts. This interpretation may vary significantly based on several factors and circumstances.
Take the case of Lincoln Towers Ins. Agency v. Farrell, 1981, where the court decided that an automobile list containing customer information did not qualify as a trade secret.
The court found that the information was already known to other competitors as the customers do business frequently with more than one company or otherwise changed businesses often. This showcases that courts might not regard information as confidential if readily accessible elsewhere.
In the contrasting case of Courtesy Temporary Serv., Inc. v. Camacho, 1990, the court ruled in favor of preventing an ex-employee from using a list, finding the “work effort” expended to acquire and retain customers to be a “protectable trade secret” because the “nature and character” of the customer information was “irrefutably of commercial value,” even if customer names could be found elsewhere.
Thus, courts may deem information confidential when it’s unique or contains sensitive information related to the entity involved.
Understanding Your Confidentiality Obligations
In conclusion, confidential information is a nuanced concept in non-disclosure agreements. From delineating what falls under confidentiality to examining cases, we’ve navigated the complexities to bring you clarity. Equipped with this knowledge, you now know how to identify and handle confidential information in the context of a non-disclosure agreement in the future.