Confidentiality agreement indemnity is a clause in this type of contract that applies to third-party claims; for example, if you sign a confidentiality agreement that protects information provided by one company that belongs to a third party, you would be protected from third-party claims of breach of contract.

What Is Confidential Information?

An NDA defines confidential information using three basic methods: general description, specific description, and specific marking of the information in question.

General descriptions allow you to protect categories of information, such as sales strategies, procurement details, marketing information, customer lists, manufacturing protocols, and investor data. Although this strategy prevents you from having to update the NDA in the future, it does carry legal risk.

Specific descriptions are most appropriate in NDAs that govern short-term, project-based relationships, in which the information requiring protection is not expected to expand or change over the course of the engagement.

The marking strategy designates specific information as confidential and is useful in making sure that no private information is inadvertently disclosed. However, marking every confidential item as such creates a practical and administrative burden.

What Are Confidentiality Agreements?

Also called non-disclosure agreements (NDA), confidentiality agreements are legally binding contracts that identify information that one or both parties want to keep confidential and prohibiting this information from being publicly or privately disclosed.

Confidentiality agreements typically:

  • Limit disclosure of confidential information to those who need to know
  • Limit discussion of this information to the specific, relevant transaction at hand
  • Require both parties to reasonably secure the information

These contracts usually refer to the disclosing party and the receiving party. Confidentiality agreements are most commonly used in employment but can also exist among independent contractors, suppliers, vendors, investors, and other business partners and associates.

Employers use confidentiality agreements so they can optimize their business by freely sharing information with employees while protecting this data from disclosure to competitors. Examples of confidential business information include strategic plans, processes, marketing strategies, client lists, knowledge, technologies, and proprietary relationships.

Most confidentiality agreements keep the receiving party from disclosing the information during the term of the contract and for some time after it ends.

What Clauses Should Confidentiality Agreements Include?

The confidentiality agreement should outline each party's specific obligations associated with the information in question. Clauses cover these obligations such as those governing:

  • The disclosure of third-party confidential information
  • The level of care expected of the receiving party when handling confidential information.
  • Indemnity in third-party disclosure
  • Liability limitations in the case of a breach of contract
  • Damages for breach of contract, including loss of profit and revenue

An exclusions clause indicates information that is not considered confidential and may cover items the receiving party was already aware of, received from a third party, developed independently, and/or have entered the public domain.

How Can Businesses Manage Confidentiality of Third-Party Information?

If businesses must share confidential information that belongs to a third-party, several management options are available:

  • A customer agreement that includes an NDA with indemnification, which has the advantage of exempting the third party from negotiations but keeps you liable to the third party since the customer is already indemnified
  • A three-way agreement between the customer, the company, and the third party; however, you must ensure that no joint liability develops as a result of this contract.
  • A separate NDA between the customer and the third party, which means you would not be liable to the third party and need not indemnify the customer

In situations where you do not want to involve the third party in discussions with your client, you should use the first option; otherwise, it's best to involve the third party and avoid liability. You must also ensure that the customer can stand behind the indemnification.

How Is Intellectual Property Managed in Confidentiality Agreements?

With an NDA, each party retains the intellectual property (IP) ownership and rights of its own confidential information. This type of agreement does not provide a license or other rights to the other party's confidential information.

You may further protect your interests by including specific language to this effect, such as indicating that the confidential information disclosed occurs without implied or expressed warranty or representation.

If you need help with a confidentiality agreement, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.