Confidentiality agreements, also commonly referred to as non-disclosure agreements (NDAs) or confidential information disclosure agreements (CIDAs), are fundamental in facilitating all types of business transactions. They represent one of the most common types of contracts, and are often the first step in a potential business transaction.

Because they are so commonplace, many companies strive to automate the process of entering into a confidentiality agreement to achieve greater efficiencies. For example, many companies:

Even when involved in drafting and negotiating an NDA, attorneys, whether at a firm or in-house, are under pressure from their clients to complete the process quickly so that the business discussions can proceed. They often focus on any controversial aspects of the agreement, neglecting to consider the standard language and its implications and exposing their clients to undue risk.

This update provides a brief review of the standard definition of confidential information (see Definition of Confidential Information) and standard exclusions from this definition (see Exclusions from the Definition of Confidential Information). Then, to illustrate the risk of a one-size-fits-all approach to confidentiality agreements, it examines the exclusion from the definition of confidential information of any information developed independently by the recipient. This update is not intended as a comprehensive analysis of the risks and limitations of confidentiality agreements. Rather, it serves to highlight one of the many practical challenges of protecting confidential information and is a companion piece to our comprehensive suite of confidentiality resources found in our Confidentiality and Nondisclosure Agreements Toolkit.

While confidentiality agreements vary in form depending on the particular business, industry or transaction, many share key standard provisions (see Practice Note, Confidentiality and Nondisclosure Agreements: Key Provisions and Issues). Two such key provisions that appear in almost all confidentiality agreements are:

The definition of confidential information is a key part of any confidentiality agreement. Typically, the disclosing party should:

The types of information that are commonly defined as confidential include:

For sample definitions of confidential information, see: Standard Documents, Confidentiality Agreement: General (Unilateral, Pro-Discloser): Section 1 and Confidentiality Agreement: General (Unilateral, Pro-Recipient): Section 1.

Exclusions from the definition of confidential information are as common as the definition itself. The recipient of confidential information should ensure there are appropriate exclusions from the definition (which can be broader or narrower, depending on the party). Typical exclusions include information that:

For sample language regarding exclusions to the definition of confidential information, see Standard Documents, Confidentiality Agreement: General (Mutual): Section 2 and Confidentiality Agreement: General (Short Form, Unilateral, Pro-Discloser): Section 2.

These exclusions are not typically controversial and generally accepted by both parties as standard language. The receiving party is usually successful in including them in the agreement as logical and reasonable exceptions to what is typically considered confidential information. Still, the disclosing party should be wary of automatically including these exceptions without thinking through whether they are appropriate for the needs of the particular transaction.

The basis for the independently developed information exclusion is that the recipient of confidential information should not be precluded from using any information it develops on its own. In theory, this is a fair and reasonable limitation. In practice, however, it can prove quite difficult to administer.

The disclosing party should be wary of automatically agreeing to this exclusion without considering:

Negotiating against the inclusion of standard language is difficult. By its nature, the exclusion is standard, meaning that it is generally not controversial and accepted by both sides without any negotiation. While it may be hard-pressed to make legal or logical arguments for the exclusion of standard language, the disclosing party can: