Confidentiality clauses: some tips for a valid and effective clause

Confidentiality clauses aim to protect confidential information shared by the parties in the context of concluding and performing the agreement. The party obtaining the confidential information undertakes to treat it as confidential, not to communicate it to third parties and not to use it for purposes other than the performance of the agreement.

Case law recognizes the existence of an implicit confidentiality commitment for the activities of certain professional groups (e.g. bankers, company directors). However, in order to ensure greater certainty, we recommend that even in these cases an explicit and written confidentiality clause should always be included in contracts. Moreover, this allows the clause to be modulated.

You will regularly be faced with business partners who wish to impose a unilateral confidentiality clause on you to protect the information to be provided by them. Always ask yourself whether, within the framework of the agreement, you yourself will not also transmit confidential information to the other party. If so, you should insist on a mutual confidentiality clause that protects the information exchanged by both parties.

The parties should clearly define what information must be kept confidential. The clause can include information that existed prior to the conclusion of the agreement, as well as information exchanged or developed during the term of the agreement. Furthermore, the existence of the agreement and the content of that agreement may also be confidential. A confidentiality clause best specifies what information must be kept confidential. For example, it is not always required that the existence of the agreement itself must be kept confidential (e.g., in the case of a collaboration that is made public).

On the one hand, the information to be kept confidential can be described concretely through a detailed list in the clause. On the other hand, if the parties do not yet have a complete picture of the information that will be shared or will arise when the agreement is concluded, the parties may also choose to describe the undisclosed information in more abstract terms. Since parties often do not yet have a complete picture of the performance of the agreement, we recommend combining a concrete description of the undisclosed information with a more abstract description.

Another point of discussion that often arises between parties is whether the confidentiality obligation is limited to the information that the disclosing party has expressly designated as confidential, or includes all information exchanged or created during the term of the agreement. Your position on this will depend on whether you are more likely to be a disclosing party or a receiving party. An "intermediate solution" that can be employed is to limit the duty of confidentiality to information "that a reasonable person would consider confidential. 

Furthermore, the confidentiality clause should not have too broad a scope, as the clause might not be valid if it exceeds the legitimate interest of the disclosing party. Therefore, it is important to exclude the following information from the information to be kept confidential: (i) information that the receiving party already knew independently of the disclosing party prior to the conclusion of the agreement, (ii) information that the receiving party discovers through a third party or develops itself, and (iii) information that is publicly available or generally known. Finally, it is useful to provide an exception allowing parties to share the information to be kept confidential in the context of judicial or arbitration proceedings concerning the agreement. In certain cases, it is also useful to include an exception for transfers to public authorities (e.g., tax authorities, regulator).

Furthermore, it should be stipulated what the receiving party may and may not do with the information to be kept confidential. In this sense, one can stipulate that the undisclosed information may not be directly or indirectly distributed or shared, that the undisclosed information must be secured (e.g. by restricting access), that the undisclosed information must be returned or destroyed at the end of the underlying agreement, and that the receiving party may not use the information for its own purposes beyond the scope of the agreement.

As shown by the above-mentioned decision of the Court of Cassation of September 9, 2021, an obligation of an indefinite duration can always be terminated subject to reasonable notice, since one cannot commit oneself to a lifetime commitment. This general principle of law touches on public policy, which means that parties cannot derogate from it by contract. In the context of confidentiality clauses, this means that it is advisable to provide for confidentiality clauses of a certain duration (e.g., the confidentiality obligation ends five years after the end of the underlying agreement or when the confidential information loses its confidential nature). The duration itself should be determined according to the subject matter of the agreement. Also consider the starting point of the term. In certain cases, it may be useful to determine the starting point of the term depending on when the information was exchanged. Furthermore, it can be stipulated that the confidentiality obligation does not end upon termination of the underlying agreement.

The advantage of including a confidentiality clause is the possibility of attaching a concrete sanction to its violation, for example, a certain compensation due at a flat rate per violation. In this case, it is important to ensure that this compensation is reasonable and proportionate to the harm that the affected party may suffer, without prejudice to its proof of actual harm suffered. 

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Do not hesitate to contact Lydian's Commercial & Litigation team if you have any questions or if your Non-Disclosure Agreements need a review and update.