Confidential information: Overview, definition, and example
What is confidential information?
Confidential information refers to proprietary or sensitive data shared between parties in a contract that must be kept private and protected from unauthorized use or disclosure. This can include trade secrets, financial records, business strategies, customer data, or any other non-public information disclosed during the course of the agreement.
For example, a company sharing product designs with a supplier might classify those designs as confidential information.
Why is confidential information important?
Confidential information clauses are important because they protect valuable or sensitive data from being disclosed or misused. These clauses ensure trust between parties and safeguard intellectual property and competitive advantages. They also provide clear guidelines on how such information can be used and the consequences of unauthorized disclosure.
For SMBs, protecting confidential information is essential for maintaining a competitive edge, safeguarding customer trust, and ensuring legal compliance with privacy laws.
Understanding confidential information through an example
Imagine a software company hires a contractor to develop a new application. The contract includes a confidential information clause that specifies:
- “Confidential Information includes the software’s source code, design specifications, and any documentation provided by the Company during the project.”
This ensures the contractor cannot disclose or use the company’s proprietary information outside the scope of the agreement.
An example of a confidential information clause
Here’s how a confidential information clause might appear in a contract:
“Each Party agrees to maintain the confidentiality of all non-public, proprietary, or sensitive information disclosed by the other Party (‘Confidential Information’) and to use such information solely for the purposes of performing its obligations under this Agreement. Confidential Information shall not include information that: (a) is or becomes publicly available without breach of this Agreement; (b) is independently developed by the receiving Party without reference to the disclosing Party’s information; or (c) is required to be disclosed by law, provided that the receiving Party gives prompt notice to the disclosing Party.”
Conclusion
Confidential information clauses protect sensitive data shared between parties in a contract, ensuring it is not disclosed or misused. These provisions foster trust, protect intellectual property, and mitigate risks associated with unauthorized disclosures.
For SMBs, including clear and robust confidential information clauses in contracts is crucial for safeguarding competitive advantages, customer data, and proprietary processes. Such clauses provide a strong foundation for secure and professional business relationships.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.