Defining Confidential Information
Written By Ethan King
When you sign NDAs or other agreements that include confidentiality clauses, check the definition of confidential information.
NDAs and other confidentiality agreements prevent one or both parties from sharing or using “confidential information” that they received from the other party. So the first question is, what counts as confidential information?
The definition of confidential information determines the power of the NDA.
If disclosed information does not fall under the definition of confidential information, the receiving party is permitted to disclose it to third parties or use it for its own purposes.
On the other hand, if disclosed information falls under the definition of confidential information, the receiving party may not disclose that information to third parties or use it for its own purposes.
The definition of confidential information can be broad or narrow. Be careful which one you choose.
Broad Definitions of Confidential Information:
A broad definition of "confidential information" offers maximum protection and typically protects almost any type of data disclosed by one party to another without much specification.
Pros:
Comprehensive Protection: It can safeguard all types of information, including documents, discussions, and even informal conversations and emails.
Prevention of Loopholes: A broad definition minimizes the risk that certain sensitive data might be overlooked and unprotected, such as someone not adding a confidentiality watermark to a document.
Cons:
Vagueness: Overly broad definitions can lead to ambiguity, which makes it difficult for the receiving party to understand what is confidential.
Enforcement Problems: Courts may find broad provisions on confidential information too vague to enforce if there is a dispute or disclosure of information, especially if the information in question is not clearly confidential.
Narrow Definitions of Confidential Information:
A narrower definition of “confidential information” specifies exactly what information is protected, such as specific trade secrets, business plans, models, or financial records.
Pros:
Clarity: The receiving party clearly understands what counts as confidential information, which reduces the likelihood of potential disputes.
Enforcement: Courts are more likely to enforce a narrowly tailored confidentiality provision. It is easier to determine what is actually understood as confidential and what is not.
Cons:
Limited Protection and Gaps: A narrow definition of confidential information may exclude information that should be protected. The parties might not conceive of every piece of information that could have been exchanged, leaving the information outside the definition's scope.
Adam Yohanan is a transactional business lawyer with extensive experience representing companies, investors, and entrepreneurs in a wide range of high stakes business transactions.
Adam handles the small and large transactions in the life of a businesses, including mergers & acquisitions, entity formations, partnerships and joint ventures, investing and fundraising, commercial contracts, and dissolutions. His office can be reached at 212-859-5041.
Haley Kopp is a corporate lawyer focused on representing start-ups and small companies in formations, venture capital, angel investor financings, mergers and acquisitions, and general corporate matters.
Haley's diverse experience gives her a practical approach to solving complex business issues, whether guiding companies through financing rounds or corporate transactions. Her office can be reached at (619) 512-3652.
This guide is meant for educational and informational purposes only and should not be considered legal advice. It is essential to consult with an attorney or other advisors regarding all legal and other important matters.
