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Legal glossary

Indemnification related to confidentiality of materials: Overview, definition, and example

Indemnification related to confidentiality of materials refers to a provision in a contract where one party agrees to protect another party from any legal or financial consequences resulting from a breach of confidentiality. Specifically, it ensures that if confidential materials (such as trade secrets, proprietary information, or sensitive documents) are disclosed or used improperly, the party responsible for the breach will cover any damages, costs, or liabilities incurred by the other party due to the breach.

This type of indemnification is often included in contracts where confidential information is exchanged, such as non-disclosure agreements (NDAs), employment contracts, or supplier agreements.

This indemnification is important because it provides a level of security for parties who are sharing confidential information. Without such a provision, the party disclosing confidential materials might face significant financial and reputational risks if the other party fails to maintain confidentiality. By including an indemnification clause, the party sharing the confidential information ensures that they will not be held financially responsible if the confidentiality is breached by the other party.

For businesses, this provision helps protect intellectual property, proprietary data, and sensitive client information, which can be critical to their success. It also provides an incentive for the receiving party to take confidentiality obligations seriously, knowing they could be held financially accountable for any violations.

Imagine a software company that shares its proprietary source code with a developer for custom programming. The agreement between the company and the developer includes an indemnification clause, specifying that if the developer discloses the source code to a third party or uses it inappropriately, the developer will be responsible for covering any costs or legal damages resulting from that breach. This protects the software company from any financial loss or damage that may arise from the developer’s actions.

In another example, a business that enters into a supplier agreement to share marketing strategies with a third-party vendor includes an indemnification clause. If the vendor inadvertently shares the marketing strategies with a competitor, leading to a loss of competitive advantage, the vendor would be financially responsible for the damages, as agreed in the indemnification provision.

Here’s how an indemnification related to confidentiality of materials clause might appear in a contract:

“The Receiving Party agrees to indemnify and hold harmless the Disclosing Party from any claims, damages, or expenses arising from a breach of confidentiality of the Materials, including but not limited to any unauthorized use, disclosure, or dissemination of the confidential information to third parties. The Receiving Party shall be liable for all legal fees and costs associated with such a breach.”

Conclusion

Indemnification related to confidentiality of materials ensures that if confidential information is disclosed or misused by one party, the other party is protected from financial and legal consequences. This provision is important for businesses that rely on the protection of sensitive data or intellectual property, as it ensures that they will not bear the cost of a breach of confidentiality caused by another party. By including such a clause in contracts, companies can safeguard their interests and hold parties accountable for the proper handling of confidential materials.

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.

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