When it becomes clear who will take the role of the Disclosing Party of the confidential information, and the Receiving Party of the confidential information, the most important part of the NDA comes into place – i.e., defining what is considered confidential information.
In the broadest sense, any confidential information that leverages competing power can be considered confidential information. Typical examples of information that may compose confidential information are product formulas, client lists, marketing strategies, algorithms, processes applied in computer programs or computer programs themselves, financial information, etc. The unauthorized use of such information is considered to be unfair competition and a breach of confidential information.
Another example of confidential information is the source code. Although the source code is protected by copyright, this protection is quite limited, because it weakens with technical code modifications. A confidentiality agreement should protect from a situation where the Receiving Party of confidential information creates a program for the same purpose after inspecting your code, using the same idea, but with a somewhat different code, and, ultimately, creates a product that will benefit them instead of you.
What will be considered confidential information in your particular case depends on the project itself and the business relationship. Understandably, if you are a Disclosing Party (for example, a contracting authority for an outsourcing agreement), you will want to make the definition as broad as possible. In contrast, if you are a Receiving Party (for example, a contractor for an outsourcing agreement) you should conduct negotiations so that the scope of the confidential information is limited as much as possible.
However, it is very important for the outcome of the negotiations to present an appropriate balance between a broad definition, which will virtually have the meaning of “everything is confidential” (the catch-all-clause), and a definition that does not include every aspect of the business that should be considered confidential.
In that light, an additional mistake that we have encountered in practice so far is defining confidential information so broadly that a question justifiably gets raised – what is not confidential?
The problem that may arise with such agreements is that they could be unenforceable, which means that in the event of a dispute, the Court may refuse to provide protection to the Disclosing Party. Therefore, do not allow yourself to fall into this trap.
Furthermore, you shall define the manner in which confidential information can be transferred – it is best to explicitly state whether it can be disclosed in written, oral or electronic form, as well as information contained in physical parts, software, and materials, which will depend on what is protected by the confidential information.