Direct Damages for Breach of Confidentiality
Knowing about direct damages for breach of confidentiality is vital when you enter into business or business discussions with another party.3 min read
Knowing about direct damages for breach of confidentiality is vital when you enter into business or business discussions with another party. If both parties are disclosing confidential information, then you will need to create a mutual confidentiality agreement. If only one person is, then you will want to create a unilateral NDA.
When creating a nondisclosure agreement, it is important to always label these documents as confidential, so there is no confusion as to whether the information contained in them is privileged or not.
If the confidential information is shared through a verbal communication, such as through meetings, then the party that is disclosing the information will need to provide some sort of written notification letting the receiving parties know that the information is to remain confidential.
You need to make sure that you do not label all documents confidential as it can lead to pitfalls and problems protecting information that is truly important. The NDA needs to be formatted to cover specific information, and that information should be discussed right after signing, so the receiving party is fully aware of what information needs to remain confidential.
While an NDA places restrictions on the receiving party's ability to disclose the information, it should also include restrictions against the receiving party using that information as well.
NDA Definitions and Standard exclusions
The NDA should include what exactly constitutes the confidential information and any prior disclosures that need to be made before it is signed. You should also be sure to name standard exclusions on what does not constitute confidential information. These exclusions include:
- Information that is received from a third party that allows the information to be disclosed.
- Information that was developed independently of the information contained in the confidentiality agreement.
- Information that the receiving party already knew before the time of disclosure.
- Information that is publicly available without breaching the agreement by the receiving party.
- Consent from the disclosing party that allows the receiver to disclose certain information.
- Information that is required by law to be disclosed by the receiving party.
Residuals clauses make an exception to the definition of confidential information for information that would be considered retained on a person's memory. This can be considered an aggressive position for the receiving party and is often viewed with scrutiny by the disclosing party. This would allow the NDA to be tailored by requiring destruction of all the notes and summaries that the receiving party has made.
Disclaimer of Consequential Damages
In a disclaimer of consequential damages, parties will include language that disclaims consequential damages if a breach of the NDA occurs. This disclaimer is not often accepted by the disclosing party as the damages they are most likely to seek in a breach of NDA is consequential damage. This would leave the disclosing party with little recourse if a breach happens.
You should carefully consider the term you set for the NDA and the length of time that it can restrict the disclosure of the confidential information. If the confidential information constitutes a trade secret, you need to include specific languages as to the fact that expiration does not apply to trade secrets.
Waivers of Injunctive Relief
When an NDA is breached, the most common defense is obtaining a permanent or even temporary injunction by the court. This will prohibit the receiving party from, disclosing any of the confidential information at least temporarily until the court case and be resolved. Often, filing a suit for monetary damages is not enough and an injunctive relief is your primary protection.
Imitations of Liability
Some NDAs will come with limitations of liability clause which states that you cannot seek:
- Punitive damages
If such limitations were agreed to, it is more difficult to recover damages for a breach of confidentiality.
Non-Solicitation or Non-Competition Provisions
Typically, NDAs are entered into before a business relationship has commenced. Because of this, a non-solicitation or noncompetition provision may not make sense. But if you plan on divulging business strategies for future business dealings, you may want to include these in the terms.
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