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A poorly designed confidentiality agreement can badly damage a company. Xu Yehong, a legal director at Nuctech, identifies seven key issues in-house counsel should focus on when reviewing such agreements

To protect confidential information on products and technologies, many companies incorporate confidentiality clauses into contracts with third parties, such as contract design or development agreements, contract manufacturing agreements, sales contracts, maintenance service contracts and equipment lease contracts. These confidentiality clauses play a crucial role during contract performance.

Sometimes parties need to exchange confidential information before deciding whether to proceed with the co-operation and execute a formal contract. Alternatively, both parties may value confidentiality so highly that they sign a separate confidentiality agreement in addition to the formal contract. This situation gives rise to a document such as a confidentiality agreement.

As the first line of defence in protecting a company¡¯s competitiveness. A confidentiality agreement is not only a legal document but also a vital carrier of commercial strategy

Xu Yehong
LEGAL DIRECTOR
NUCTECH

In-house counsel must ensure the company¡¯s interests are protected without unduly restricting normal business exchanges, and that breach provisions are enforceable to build a robust commercial security barrier for the company.

Unilateral v bilateral agreements

Confidentiality agreements are typically executed before the disclosing party provides confidential information to the recipient. When only one party discloses and the other only receives it, a unilateral confidentiality agreement suffices. In most cases, both parties disclose and receive confidential information as part of their co-operation. In such situations, a bilateral confidentiality agreement should be executed.

Scope of confidentiality

In a confidentiality agreement, the parties first need to specify which information constitutes confidential information. Some companies provide extensive product and technical information during co-operation and seek to define the scope of confidential information more broadly to protect their interests. In such a case, the author advises that confidential information includes, but is not limited to, trade secrets.

A trade secret is defined in the Anti-Unfair Competition Law as commercial information, such as technical or business information, that is not publicly known (secret), is commercially valuable (value), and has been subjected to appropriate confidentiality measures by the rights holder (confidential).