Pssst........I've Gotta a Secret

How to Protect the Confidential Information You Share 

If you are buying or selling a business, entering into a manufacturing or consulting contract, or in any way collecting or sharing information about a business, at some point in the discussions more information about the business will be shared than either party would want the general public to know.  Well-crafted non-disclosure agreements (NDAs) can protect the confidential information of both sides of a business relationship or sale. People often pull a form off the internet, fill in the blanks and send it off to the other side. Likewise, recipients of NDAs often skim and sign them. This is never a good idea.  There are often subtle differences among "form" NDAs.

When reviewing an NDA, it is important to understand to whom and what it applies.  Is it mutual and reciprocal or does it only protect the information of one party?  Typically, it should be mutual because even if one party is receiving most of the information the process and response from the recipient may also be important to keep confidential. What information is protected as confidential? Does the definition of confidential information include only documents "stamped" confidential? In other words, if you hand over something that is clearly a sales forecast or describes a proprietary technique, it may not fall within the definition of "confidential information" if the definition is too limited. Ideally, confidential information is defined by the nature of the information, not whether it has "CONFIDENTIAL" written on it.  How does the NDA treat confidential information that is verbally conveyed?

A complete NDA will address the use of the confidential information.   The agreement should set forth a specific purpose, such as due diligence for a proposed business transaction.  Also, the recipient company should disclose the information only with employees who are necessary to the project.  Language allowing for the sharing of information to agents and affiliates could be too broad and jeopardize a party's ability to protect confidential information.    

 Exceptions for the promise not to disclose and what is confidential information are equally as important as the use and definition of what information is confidential.  Typical exclusions from the definition of confidential information involve information made public other than by a breach of the agreement and information known by the parties before the effective date of the agreement.  The most common allowable disclosure of confidential information relates to disclosure when required by court or regulatory body and such a term should be included in most NDAs.

 Liquidated damages provisions are another key provision.  In the event that one party or another does disclose confidential information, the speculative nature of damages could make it nearly impossible to enforce even the most complete NDA.

 Finally, as with any well drafted agreement, a complete set of miscellaneous provisions help define the agreement and ensure the parties understand their rights and obligations.  Among the more important "miscellaneous" terms for an NDA are: the term of the agreement, a choice of which state's law should apply, and whether the agreement may be assigned.

Please contact Michael Pearson if you have any questions relating to non-disclosure agreements or other business contracts.  If you enjoyed this article please share it with your business contacts and like us on Facebook.

Michael Pearson

Attorney

Cohen Durrett, LLP

2100 Northrop Ave., Ste. 900

Sacramento, CA 95825

(916) 927-8797

 [email protected]

We at SellingRestaurants feel obligated to educate the public, our customers and our clients with information that can help them make more intelligent buying and selling decisions. 

Mel Jones is one of the premier restaurant brokers in the nation having published hundreds of articles on buying and selling a restaurant and bar business, selling thousands of restaurants in CA., WA and AZ and building one of the most copied business models in the brokerage industry.  Mel started SellingRestaurants in 2004 with the one simple concept, give the buyers the information they need to make intelligent buying decisions without being pestered by a broker or hiding information, prepare the business for market by researching key details that make or break deals and educate the buyer on the buying process to create an intelligent buyer.  Prior to SellingRestaurants, Mel was a Chief Financial Officer for Universal Music Group, the largest music company in the world.  There he participated in more than $11.5 billion of merger and acquisition transactions.  He also work for top companies such as Nestle Foods, USA. He hold a Bachelors in Business Administration Finance as well as attened Law School at Gonzaga University.  Give Mel a call at 480.274.7000 or e-mail him at [email protected] if you have any questions.