Confidential Information- written or oral?

Even if you do not have a confidentiality agreement in place it was Lord Denning in (Seager Limited v Copydex Limited [1967] 2 All ER 415, Lord Denning MR) who established the broad principle under equity law that a person who has received information in confidence cannot take unfair advantage of it. That person must not make use of it to the prejudice of the person who gave it without obtaining his consent.

What is the purpose of a confidentiality contract?

  • It creates certainty
  • it establishes a contractual obligation
  • the confidentiality ensures enforcement and supports a claim under general law because it creates the relationship of confidence that is the basis of many claims and
  • it sets out in detail the conduct which the disclosing party expects from the recipient).

In short confidentiality agreements MUST be entered into in any commercial negotiations.

For example –

  • Employment and consultancy contracts.
  • Share or asset acquisitions.
  • IPR purchases and sales.
  • Patent discussions.
  • Recommended takeover bids.
  • Joint ventures.
  • Research and development collaborations.
  • Licences and assignments of technology.
  • Distribution and long-term supply arrangements.
  • Tenders.

What is “confidential information”?

As a general rule, confidential information cannot be owned. It is usually just a secret which one person does not want others to know. Once other people know the information, it no longer “belongs” to that person. Keeping this in mind is the key to drafting a clause and any agreement.

The following types of information may need to be kept confidential:

The detailed commercial information provided to the recipient.

This can include everything that the recipient finds out from the disclosing company – from customer lists to manufacturing processes – unless it falls into certain excluded categories discussed below.

The fact that negotiations are taking place and their status.

A leak of this nature is particularly detrimental when a listed company is involved as it could force the parties to make an announcement or expose them to allegations of insider dealing. But private companies do not normally want their employees, customers, suppliers or lenders to know about a proposed deal until they are confident it will go through. This is particularly true in the case of an acquisition.

One of the oldest tricks used by acquirers is to let everyone know that the target business is for sale, putting it into a state of uncertainty, possibly even affecting its value and giving the acquirer a strong negotiating position.

The existence of the agreement, its detailed terms and conditions.

The disclosure of this information could also be detrimental to the discloser (assuming that no listed company is involved and therefore no obligation to announce under market rules) and cause uncertainty in that it would alert people to the fact that some major commercial transaction was imminent.

For a breach of confidence claim to succeed, three criteria must be met:

  • The information must have the requisite quality of secrecy or confidence.
  • The information must have been disclosed in circumstances importing an obligation of confidence.
  • There must be an unauthorised use of that information to the detriment of the party communicating it.

(Coco v A. N. Clark (Engineers) Ltd [1969] RPC 41.)

As Megarry J. said in the Coco case,

“The essence of the duty [of confidentiality] seems more likely to be that of not using without paying, rather than of not using at all”.

Once information has been disclosed, it cannot be made secret again and it is very difficult to establish the appropriate quantum of damages. Where an injunction is available, the process is usually slow.

There is no statutory framework governing ownership or other rights in confidential information. Each case will be considered on its merits.

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