A confidentiality agreement, which is also known as non-disclosure agreement or simply as an NDA, is simply a contract between two or more parties where the subject of the agreement is a promise that information conveyed will be maintained in secrecy.
These agreements can be mutual agreements, where both parties are obligated to maintain secrecy, or they can be unilateral agreements, where only the receiving party becomes obligated to maintain secrecy.
Mutual confidentiality agreements are useful when both parties will be conveying confidential information, such as for inventor groups. Standard unilateral confidentiality agreements, which are probably most common in the innovation arena, are used when only one party is turning over confidential information, perhaps to a potential investor or prospective licensee.
These types of agreements are particularly useful when one is disclosing information that is valuable so long as secrecy is maintained (i.e., a trade secret), which can include both invention related information and business related information. Indeed, if you are going to attempt to claim the valuable information you possess is a trade secret you must take reasonable steps to preserve the secrecy. An agreement that obligates the recipient to maintain your trade secret in confidence becomes absolutely necessary because once the trade secret is generally known it is no longer a trade secret. See The Secrecy Requirement.
Indeed, you can use a nondisclosure agreement to protect any type of information that is not generally known. And the use of a confidentiality agreement means that those who receive the information are obligated to maintain the information in secret, which legally prohibits that disclosure subject to an agreement from being a general disclosure that would defeat a trade secret.
It should be noted, however, that while some court cases in some jurisdictions do allow oral creation of such a confidential relationship, and some court cases in some jurisdictions do allow actions to be used as evidence of the creation of such a confidential relationship, you should NEVER rely on or anticipate that a court will enforce an oral confidentiality agreement based only upon action.
The reason you should never rely upon an oral confidentiality agreement is simply because it is exceedingly difficult, if not impossible, to prove the existence of an oral agreement and/or actions that suggest the creation of such an agreement. This is because of the “he said she said” problem. Essentially, a case that relies upon an oral agreement will be decided based on who is believed. Don’t put yourself in this situation if you can at all avoid it. You should always attempt to get the agreement in writing (whenever possible), even if you need to water it down a little to get a signature.
Indeed, a simple confidentiality agreement will usually seem less intimidating, but may actually provide the party disclosing the information more rights. For example, in this simple confidentiality agreement there are no provisions that would absolve the receiving party of the obligation to maintain the secret if and when the information became publicly available, as is the case in a fairly typical, longer confidentiality agreement.
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Agreements that create a confidential relationship are particularly useful when you have an invention and you have not yet filed a patent application. Still, if you can get a confidentiality agreement signed even after you file a patent application that is preferable. See Justified Paranoia. While you will have placed a stake in the ground to define your invention when a patent application is filed, no exclusive rights will exist until the patent is actually granted. Therefore, to maintain the rights to the invention while a patent application is pending a confidentiality agreement is required. Furthermore, it is quite possible that when disclosing an invention you will also disclose marketing and other business information not disclosed in the patent application, which itself could be maintained as a trade secret.