Confidentiality Agreements

Meyerlustenberger Lachenal ("MLL") recently posted unilateral and bilateral confidentiality agreements in English, German and French on PartnerVine. This blog is a question and answer session with Camillo Devecchi, knowhow lawyer and senior associate in MLL’s corporate law | M&A department. 

PartnerVine: MLL has recently posted different versions of confidentiality agreements on PartnerVine. Can you briefly explain the differences between these versions?

Camillo: Basically, we have created two types of confidentiality agreements: unilateral agreements and bilateral agreements. In a unilateral confidentiality agreement, only one party is bound by the confidentiality obligations. This type of agreement is usually chosen when only one party discloses confidential information. In case both parties deliver sensitive information to the counterparty, the form of a bilateral confidentiality agreement should be chosen. Moreover, we are providing each type of agreement in German, English and French.

PartnerVine: What are the typical situations in which confidentiality agreements would be used? And when would you choose a unilateral agreement and when a bilateral agreement? 

Camillo: Confidentiality agreements are typically used in connection with the exploration and/or negotiation of (possible) transactions, in the context of any form of cooperation (joint venture, joint development, etc.), with regard to the establishment of business relationships or for any other projects in which confidential information will be exchanged. Confidentiality agreements, also called non-disclosure agreements or NDAs, are probably the most commonly signed legal agreement in the business world.

As mentioned above, unilateral agreements are to be used in any context in which only one party delivers sensitive information to the counterparty and wishes to ensure the confidentiality of such information and/or the fact of the cooperation. For example if a business owner considers selling its company, he/she will conclude a unilateral confidentiality agreement with a potential buyer to ensure that sensitive information about his/her business will be treated confidentially and that the potential buyer is prohibited from using the information for other purposes or disclosing it to third parties. 

Bilateral agreements, on the other hand, are to be used if both parties disclose sensitive information. For example when two companies want to explore a business relationship which requires both parties to disclose certain sensitive information, they will conclude a bilateral confidentiality agreement. If you are considering a unilateral agreement but think there is a chance you will end up receiving information from the other party, it is probably best to just start with a bilateral agreement.

PartnerVine: Confidentiality Agreements obviously contain confidentiality clauses obliging the parties to treat certain information confidential. What other clauses are typically included in confidentiality agreements?

Camillo: Confidentiality Agreements often include further provisions such as non-solicitation clauses (prohibiting the parties from soliciting or enticing away employees from the other party), standstill clauses (prohibiting the receiving party in trading securities of the disclosing party, if the disclosing party is listed at a stock exchange and the exchanged information includes price-sensitive information), or liquidated damages clauses (providing for an effective enforcement of the confidentiality obligations). In our template all these clauses are available to the user, so that he/she can configure the document according to his/her needs.

PartnerVine: Can you tell us a little more about liquidated damages clauses?

Camillo: Sure. The templates contain the option for a liquidated damages clause, which the user may want to include to give the confidentiality agreement a penalty if the agreement is breached. Having a penalty may provide an added deterrent to a breach, but the counterparty that gets a liquidated damages clause may often think it is too onerous for the type of information being exchanged. Liquidated damages clauses are often struck by the receiving party with the comment that it is not market standard. That comment is generally right, but in some situations where the stakes are high or damages may be difficult to determine a liquidated damages clause can be a good idea.

PartnerVine: What about the non-solicitation clause?

Camillo: We have included the option to have a non-solicitation clause, which is pretty standard when firms are considering a merger or acquisition, among other situations. We have broken the non-solicitation clause into three versions depending on how strict a user would like it to be, which is fairly straightforward in the questionnaire. When you purchase the template, you can test out the different versions by changing your answers in the questionnaire so you can understand more about the different versions.

PartnerVine: Is there anything you are particularly proud of in this agreement?

Camillo: We are particularly proud of the fact that our confidentiality agreement is not just tailored for one specific case, but very versatile in use. Basically, our templates can be used for any situation where confidential information will be exchanged and the parties wish to ensure the confidentiality of such information and of the fact of their cooperation. Further, we are proud to offer these templates, as all previous templates posted by MLL, in German, English and French.

PartnerVine: Thanks!

Nothing in this blog may be relied on as legal advice. Please consult your own counsel for advice specific to your facts and circumstances.

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