What is Confidential Information

In today’s cut-throat and high-speed business world, “Confidentiality Agreements” are an absolute necessity.

Every legitimate business owner is trying to protect their knowledge, information, products, ideas and identity from leaking into the wrong hands – anything they consider to be “confidential information” – lest they lose their source of viability.

By definition, in fact, confidentiality agreements (also known as non-disclosure agreements or NDAs for short) are contracts wherein two or more parties agree to be legally bound to secrecy, protecting the privacy of confidential information shared during the course of business.

An NDAs entire purpose is to protect confidential information. But what exactly is considered “confidential information” under the law? Is there a specific definition or list that one can reference?

The simple answer is “no.”

When it comes to confidentiality and non-disclosure agreements, there is no one-size-fits-all definition of “confidential information.”

For the sake of fair business and protecting the general public’ ability to provide for themselves, non-disclosure agreements and clauses are scrutinized heavily by the courts and won’t be enforced if they’re overly broad, unrealistically restrictive, or require secrecy of something that doesn’t actually qualify as “confidential information.”

So while there is no one definition of what constitutes “confidential information” within an NDA, it’s best to be aware of the many complexities of the term so that you don’t find yourself with an invalid agreement.

Confidential Information Defined by the Code of Federal Regulations

When discussing the law, it’s generally best to start with, well, the law.

19 CFR 201.6 defines “Confidential Business Information” as the following:

Now that’s a mouthful.

If you read it carefully, however, you’ll note that despite its overall length and overwhelming wordiness, the definition is actually rather vague – which is likely intentional.

And there’s your first clue. “Confidential information” can mean any number of things, depending on the parties involved, the situation, the arrangement, the industry and the specific purpose of the agreement, among many other factors.

The law has intentionally defined the term “confidential information” broadly and with many ambiguous categories in order to sufficiently allow for flexibility. After all, business, these days, can’t very well be constrained inside a neat little box. Here, the law has reflected that fact quite nicely.

Classes of Confidential Information

Confidential Information can be separated into two different classes: Personal Information and Competitive-Advantage Information.

Non-disclosure agreements, by nature, are largely designed to protect the latter. The purpose of protecting competitive advantage information through an NDA comes from the duty of good faith that’s generally imposed upon commercial and business dealings.

If your company is sharing pertinent trade secrets with a developer or potential partner, they have a duty to act in good faith to protect those trade secrets. You are, after all, entrusting them with the lifeblood of your company. By legal standards, they are required to make an honest effort to protect it.

In the following clause from a standard non-disclosure agreement, “trade secrets” are clearly the form of competitive-advantage information being shared as they’re being specifically defined within this particular agreement:

That said, NDAs and confidentiality clauses can also be intended to include Personal Information.

In today’s technology-driven world, full of data breaches and stolen identities, the protection of personal information has become increasingly significant.

If your company has been trusted with personal information that must, for the purpose of business, be shared with another person or entity, it’s highly recommended that your agreement include verbiage defining personal information as part of the “confidential information” protected under the agreement.

This is also a common clause in employment contracts. Below is an example:

Level of Confidentiality

The National Paralegal College defines 3 different forms of confidentiality, essentially resulting in three separate levels or degrees of confidentiality, two of which are relevant to NDAs.

Their definitions are normally applied to litigation, but they don’t lose their meaning for our purpose here.

• Confidentiality. A blanket term regarding the duty to keep secrets.

  Confidential information is generally not intended for disclosure to third persons.

  However, simply because a document or conversation is confidential does not necessarily mean its disclosure will be prevented.

• Highly Confidential. Depending on the case, lawyers may agree to stamp documents “highly confidential” so as to note that only certain key players in a case should have access to such sensitive documents.

  Lawyers sometimes agree with one another to mark “Highly Confidential” documents which contain personal information, such as social security numbers or bank account numbers.

If you find yourself in court over the enforcement of your NDA, having the proper term and classification of just how confidential your confidential information really is can be helpful.

In other words, be realistic about whether the information is highly confidential. If it is, define it as so.

It will leave little doubt as to the function and importance of the confidentiality agreement.

In the following example, the disclosure specifically stipulates that certain trade secret information is considered highly confidential.

Criteria for determining what is “Confidential Information”

So, when drafting your NDA and trying to determine what information qualifies as competitive-advantage confidential information, where do you begin?

Thankfully, there’s a basic checklist that you can apply. While it may not answer every question in every circumstance, it’s a pretty good place to start and will usually help you to make a sound determination.

To begin, all competitive-advantage information is going to be loosely defined as some form of intellectual property.

Intellectual property, for our purposes, refers to intellectual creations that have been or can be monopolized by their creators or owners. So, you first need to ask yourself if the information you’re trying to protect qualifies as intellectual property.

If so, you can then determine if it qualifies as competitive-advantage information by measuring it against the following criteria:

• The information has commercial value – It is, has or will generate profit for your business. Without the possibility of it being profitable, privacy is pointless.
• It’s not in the public domain – If the information is already in the public domain, then keeping it private is a moot point, as well.
• It’s reasonably protected – This is for purposes of fairness. You can’t present your new software at a trade show in front of thousands and then claim that it’s confidential information. You must be doing your part to keep the information private.
• It’s communicated to others in private – Again, this is about fairness. If you want the Receiving Party to keep the information confidential, you should deliver it confidentially in the first place.

If the information you seek to protect meets these criteria, then you likely have competitive-advantage confidential information that is worthy of a non-disclosure clause or a separate non-disclosure agreement..

Some common examples of competitive-advantage confidential information include:

• Blueprints or designs
• Recipes or chemical formulas
• Patented inventions
• Financial information
• Customer and supplier lists
• Business Plans
• Data
• And so on

Determining what constitutes personal information is a little bit more straightforward. Your dominant criteria here is going to be common sense.

Some examples of personal information that that should kept private under this kind of agreement are:

• SSN’s
• Customer bank account details
• Date of birth
• Driver’s license details
• Passport information
• And so on

What is Confidential?

Business is far too complicated to identify “confidential information” within a single definition or phrase. To the legal systems credit, however, this refusal to put “confidential information” inside a box has allowed commerce to flourish and ideas to thrive.

With a lack of precise information, we must use our best judgment, common sense and process of elimination to determine whether or not information qualifies as confidential for the purposes of a non-disclosure agreement.

Classify it, grade it and weigh it against the checklist, and you should have a pretty solid idea about what “confidential information” is.

Credits: Icon Secure File by Creative Stall from the Noun Project.