Wednesday, September 21, 2011

Confidentiality – Marking Requirements and Oral Disclosures

This is a supplement to the blog posted on April 7, 2011 on Confidentiality Agreements. The focus of this post is on marking requirements and oral disclosures

Marking of confidential information is extremely important for a number of reasons. First, if you don't require marking you would need to manage all correspondence you receive from the other party as confidential. That requires a higher standard of care for you to manage it and cost you more. Most correspondence between companies simply do not warrant treatment as confidential information. It should be limited. Second, and more important, when you receive confidential information what you are receiving is a company’s trade secret information. Just like any other proprietary right, you can be liable if you use or disclose that information in violation of the confidentiality agreement. If you use it, you become subject to misappropriation of trade secret claims. If you disclose it to others, you will have breached of the confidentiality agreement. Since receipt of confidential information creates potential liability you want to limit and control what you receive that is subject to confidentiality obligations. You don't want the supplier sending you all types of information that could cause problems or increase your risk and that also applies to things that are disclosed orally.

Confidential information being disclose under a confidentiality or non-disclosure agreement should be limited to only what you ask for. That should be further limited to only information that meets the criteria for trade secret information:
1. It is not generally known to the relevant portion of the public;
2. It provides an economic benefit to the discloser that is not generally known;
3. The discloser uses reasonable efforts (both internally and externally) to maintain its secrecy.
It should not include copyrighted or patented information as the discloser is already protect on those. It should never include all correspondence.

It needs to be marked so there is no question that it is confidential and would be subject to the requirements of the agreement. Suppliers may not like the extra work for them of marking it, but that shouldn't create both increased management costs and increased risks for you that would occur if they don't. Further the need for them to use reasonable efforts to manage their information as secret should be sufficient for suppliers to want to mark documents as otherwise they could lose the protection. If you run into a supplier that doesn't want to mark information, they will generally want all the information that's shared to be considered confidential. As a recipient that's not something you would want as is dramatically increases the potential risks to your company.

How do you do marking when the disclosure is done orally? If you are going to allow oral disclosures you need to keep the number of them limited so they will be managed. Your confidentiality agreement or non-disclosure agreement (NDA) should require several things. First, at the time of the oral disclosure the discloser must identify that information as confidential. That way the recipient knows that it is confidential and they will be able to manage it accordingly. Second, the agreement should also require the discloser to immediately send a notice confirming the disclosure and what was disclosed orally. That way it’s not just one person’s word against the other. That way if something was disclosed to an engineer, and the contract manager is the one that manages and documents the receipt of confidential information they will get that notice of the disclosure. The burden of confirming the disclosure should always be on the discloser, if it’s their information to be protected.