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Confidentiality Agreements

By John Dietz - Email Editor

Date : 25-Sep-2007

Dear Subscriber:

A confidentiality agreement is an agreement between parties (two or more) who agree not to disclose proprietary information outside of the agreement. These agreements, sometimes referred to as Non-Disclosure Agreements are used frequently in the protection of Intellectual Property Rights and in the protection of privacy rights. These legal documents are more commonly known as NDA's (Non-Disclosure Agreements) and NCND's (Non-Circumvent, Non-Disclosure). Sometimes there is an agreement not to disclose the fact that there is a confidentiality agreement, such as the ones used by the late Princess Diana. This newsletter will attempt to answer some vital questions pertaining to confidentiality agreements and their importance.

The question is should you have a confidentiality agreement in place? Will this agreement protect you? Can you afford not to have all of the necessary paperwork to protect your assets?

Though most of us do not live in the world of paparazzi, most of us at times must deal with the issues of confidentiality in business or in our private lives. The subject matter here is really risk and the risk perceived as theft or the loss of anything and everything from a tangible asset to an intangible thought or idea. (Examples: ideas, patents, trademarks, trade secrets, government issues, business strategies, disclosure of personal confidential information and employment contracts, or common industries, such as information technology, media, restaurants and hotels, manufacturing, politics and government, publishing, health care and medical technology.)

The first rule of thumb before anything else is said is: If you are the plaintiff, the "burden of proof" is on you. You will see in the end how this rule applies to confidentiality agreements and as a greater point to all of the documents in your life that are necessary to protect your assets.

The best way to protect your assets is to keep them a secret. Keep your property, your business transactions and ideas separate from the public eye and all people. This is not rocket science, but rather common sense in the essentials of keeping secrets secret. Of course, if you own nothing (but control everything as in the case of John D. Rockefeller) you can take risk to a new level, with added confidence when it comes to your assets. However your proprietary information is still available to bandits looking for the easy way out.

When and how does a confidentiality agreement protect you? When in dispute, the law will analyze the relationship between a plaintiff (the complainer) and the defendant (the accused). In almost every case of every kind, the first questions in court are "how did you meet the plaintiff" or "what is your relationship to the plaintiff?

The first thing that a confidentiality agreement establishes is this relationship.

Example - This agreement is between John Smith herein referred to as "Writer," and a Production Company herein referred to as "Producer."

The next section would establish who is submitting to whom. You must prove that there is an asset and that a person or company had contact, submission or access to this asset. A confidentiality agreement should establish this.

Example: WHEREAS, Writer submits a screenplay titled "City of Gold" (Copyright and Registration provided) to Producer for potential production.

What is the obligation of the person receiving the asset or information?

Example: Producer has no obligation what so ever, to read or produce said works "City of Gold."

So far, the obligation of the Producer is zero, but an added clause may exist

- Producer agrees to return all material within 5 business days to Writer. Now an added obligation has been added even though it may be small, the obligation, if any, should be expressly determined. This can be a simple statement or a laundry list of requests. It can also be a reciprocal agreement of obligation especially in cases requiring Good Faith effort of all of the parties to conduct some type of business.

It must be determined what is to be kept confidential and to what extent. Are the agents or employees of the submission able to review the material? In some cases, they may have to sign an identical agreement. There may be provisions restricting the transfer of material to certain parties or people outside of the agreement.

The next step is to establish some level of trust. This is important and the phrase "Good Faith" should also be represented because it is recognized by law as a standard. Standard becomes very important when it comes to damage claims. Trained and certified professionals are held to the highest standards, and this is often bound by legal statute. Every time you go to the doctor and sign a HIPA (Health Insurance Privacy Act) form, you are signing a confidentiality agreement, and the risks of damages are to the doctor or agency who presents this document to you.

The term of binding may be, a short time or, an exact period. In the case of employment, where one business owns a trade secret, which is necessary and proprietary to functioning and thriving, a person may be bound to perpetuity and only able to use or borrow this secret under the conditions set forth for employment. Another example is the theft of medical secrets and cures in process for disease; this is an every day occurrence.

Trade Secret violations have become major legal issues in medicine and technology. Frequently when one employee leaves for another company, an injunction prohibiting any information transfer is often imposed on the transferring employee if the employee has been signed under confidentiality and non-disclosure agreements. The term is now "Economic Espionage" and governed by the federal courts under U.S. sections 1831 and 1832 of the 1996 Espionage Act.

There is no substitute for proper legal filings and agreements. Time and time again, people are haunted by the hindsight of "what I should have done" and suffer that old cliche "hindsight is 20/20."

Silly? Take the case of J.K. Rowling and Harry Potter. A New York author, Nancy Stouffer, claimed that she conceptualized and wrote the original Harry Potter. Her book was self-published and self-distributed on the East Coast. Stouffer claimed that J.K. Rowling stole the characters from her 1984 book "The Legend of Rah and Muggles" which had a character called "Larry Potter." Nancy Stouffer had the burden of proof to claim that she had the rights before J.K. Rowling. Stouffer claimed that she did not file any papers because she had "Common Law" rights and no paperwork was necessary other than the original work and "first to use" claim as in trademark law.

Here are a few excerpts from Greta Van Sustern on Court TV's Burden of Proof, July 2000. Kevin Casey is the attorney for Nancy Stouffer. (on why she did not proceed with the proper paperwork to secure her rights)

Excerpt -

VAN SUSTEREN: Today on BURDEN OF PROOF:

Muggles, wizards, and magical adventures, 5.3 million copies of the new "Harry Potter" book will be released this weekend. But a lawsuit accuses the author of stealing the magic.

(Part of the conversation on the violation of the use of the work "Muggles.")

VAN SUSTEREN: Attorney Kevin, before we get to basis of Nancy's lawsuit against J.K. Rowling and others, including Time Warner, which is the parent company of CNN. There was a lawsuit filed, sort of a preemptive one filed by J.K. Rowling about six or eight months ago. What was that about?

CASEY: We were in negotiation, at the time, with counsel for Scholastic. And I remember it was the Monday before Thanksgiving, I believe that was the 22nd, they filed suit, actually Scholastic sued us first. We weren't about to go to court and try to resolve this dispute; we were trying to do it in the negotiation realm, and their suit was something called a declaratory judgment action, basically asking the court in New York to judge we did not have -- Nancy did not have trademark rights in "Muggles," and that our unfair competition allegations were unfounded.

VAN SUSTEREN: Kevin, has Nancy actually, does she actually have a trademark?

CASEY: She has a trademark. There are two types of trademarks, basically, one is called a common law trademark, which is what Nancy has. That is, you establish through use of the mark, in association with consumers with your products, and you get rights that are able to be enforced. The second type is to get a federal trademark registration, we have applied for that, we have not yet obtained one.

End excerpt -

Sadly, for Nancy Stouffer, as plaintiff with the burden of proof, she did not have the proper federal registrations. Common Law rights are a very weak issue in this country. The moral is that our law has advanced to a point that minimum agreements and registrations are required to claim any rights of any type. If you have to prove that you have the right to any type of confidentiality, you should declare this right and have others agree to it.

In reality, there is no protection in a confidentiality agreement; this is the bottom line. We know this because the only way to keep a secret is to keep it a secret. Not one single ounce of protection occurs in these agreements. No matter how well it is drafted, a confidentiality agreement cannot prevent anyone from telling your secrets or giving away your proprietary information. Not having the proper documents is not a good strategy.

However, in the event that your confidentiality is violated, refer to the rule of thumb: The plaintiff has the burden of proof. This signed agreement, formal registration or filing is the first and most important step in your burden of proof should you become the plaintiff! You will have to prove that your rights have been violated.

A Non-Disclosure Confidentiality Agreement should be a professionally drafted document because it is the first step you take in claiming your rights and your assets.

Until next time,

John

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ABOUT THIS EDITOR:

John Dietz is a strategic advisor at Trustmakers.com with a passion for client solutions that can encompass your business, your real estate, and your personal assets. Mr. Dietz serves to educate you on the latest in asset protection planning.

Full Bio - Email John