How Can Contractual Confidentiality Provisions Protect My Business?

Protecting your business’ confidential information is crucial. When entering into commercial agreements, protecting confidentiality should be a key consideration. You can include robust confidentiality provisions in your contracts to protect your confidential information. This article will explore how contractual confidentiality provisions can protect your business from risk.  

Why is Protecting Your Confidential Information Important?

A business is likely to own a range of confidential information. For instance, this could range from customer lists to know-how, trade secrets, intellectual property rights and financial information. 

A business may share confidential information with third parties in various scenarios. For example, when seeking external investment or working with suppliers with access to sensitive know-how and data to deliver their services. 

Misuse of your business confidential information could result in several problems, for instance:

• losing sensitive or client-related data could result in severe reputational damage and complaints; and
• losing valuable know-how could mean your business loses its competitive advantages or USPs, resulting in fewer revenue streams and loss of business. 

How Can Confidentiality Provisions Protect My Business?

Confidentiality clauses in a contract can play a vital role in protecting your business’s confidential information. 

Here are some of the critical protections confidentiality provisions can offer:

• by implementing these provisions into your contract, you can set out parameters and rules for using confidential business information. This way, the party receives clear rules about what they can and cannot do with your information, including who they can share it with. Rules such as this can deter third parties from misusing your confidential information by setting your expectations;
• confidentiality clauses can help by clearly defining the protected information, prohibiting unapproved use, specifying precise measures for safeguarding the information, requiring the return or destruction of the information, and establishing a procedure for handling disclosures of confidential information. Again, this can ensure your confidential information is safeguarded appropriately; 
• by including these clauses, you will also be comfortable knowing that you have clearly explained which information must be kept secret. With no confidentiality provisions in your contract, a receiving party could take advantage of your confidential information or use it for their benefit; and
• without confidentiality provisions, your business will have less legal protection. Although you can rely on equitable rules regarding the duty of confidence if your information is misused, a legal claim for breaching your confidentiality will be far more complex to prove. By including confidentiality obligations in your contracts, you may have the right to bring a breach of contract claim if the receiving party breaches your confidentiality terms. 

As such, confidentiality clauses offer you better legal protection by affording contractual remedies if your confidentiality is breached.  

What Should I Consider When Drafting Confidentiality Clauses?

There are several factors to consider when drafting confidentiality provisions in your contract. 

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You should carefully consider questions such as:

• What is the definition of confidential information? Which information am I seeking to protect?
• What specific obligations should apply around the use of my confidential information?
• Should there be any exceptions to the duty of confidentiality?
• Should both parties be bound to comply with confidentiality obligations, depending on whether confidential information is being shared both ways?
• How extensive should the confidentiality provisions be? Will a simple clause suffice, or do I need more detailed and onerous obligations?
• How long should the confidentiality obligations remain in place?
• What are the consequences of breaching these obligations? 

If you require support drafting appropriate confidentiality clauses to protect your confidential information, you can seek advice from a commercial lawyer to help you. The wording of confidentiality clauses will depend on the nature of the information being shared, how sensitive it is and which rules you seek to apply to third parties with access to it. 

Is Contractual Protection Enough to Safeguard My Confidential Information?

Whilst contractual protection is a good idea, it is not a guarantee against misuse of your confidential information. For instance, a receiving party could still disclose your confidential information despite what your contract says. 

Practical measures to protect confidential information and contractual protection are essential. 

Consider implementing measures such as:

• training staff on protecting confidential information;
• sharing only minimal amounts of confidential information; 
• limiting the parties your business shares confidential information with;
• carrying out due diligence and checks to assess the trustworthiness of third parties before disclosing confidential information to them; and
• consider technical safeguards to secure confidential information when sharing it with third parties, such as encryption or other security measures.

Key Takeaways

Confidential information can be precious for a business. The risk of such information being abused or leaked can be extremely worrying, particularly where the information is highly sensitive. Confidentiality clauses in a contract can help your business protect your confidential information and mitigate risks where you are sharing such information with third parties. The types of confidentiality clauses to include in your contract will depend on several factors, including the types of information and their sensitivity and risk. You can work with a commercial lawyer to guide you on the confidentiality obligations most appropriate for your commercial agreements.

If you need help with advice on protecting your confidential information, LegalVision’s experienced contract lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0808 196 8584 or visit our membership page.