There's more to the Law of Confidence than NDAs

Jane Lambert

I am often asked to draft or review non-disclosure agreements or "NDA". I do so with a lot of trepidation because there are many misconceptions about such instruments.  A typical example occurred last week when I was asked to advise how to prevent potential collaborators and investors from stealing the idea for a new software product.  I had advised that copyright was likely to subsist in anything that had been written down and that the law of confidence could prevent unauthorized use or disclosure.

"Oh!" came the reply. "So long as I have an NDA in place I should be alright?" Where that idea had come from, I just don't know.  I had not even mentioned non-disclosure agreements.  "That's not what I said," I told him.  "There's much more to the law of confidence that NDAs",

If, as sometimes, happens I am instructed to resist an application for an interim injunction where the applicant relies on an NDA I have a field day.  First, I ask whether the information was ever confidential in the first place.  Sometimes it is something that has been common knowledge in the industry since Adam was a boy.  Other times there has been no attempt to keep the information secret. I was once negotiating terms of a licence which negotiations were taking place in serviced offices when I found the other side's supposedly confidential document in the publicly accessible ladies' loo. There is often room to dispute whether the confidentiality agreement was ever intended to apply to the information in question. One way or another, a halfway competent intellectual property specialist can drive a coach and horses through a bog-standard standalone non-disclosure agreement.

I think confusion arises because folk regard an NDA in the same way as they do commercial agreements.  That is a mistake because any obligation not to disclose or use confidential information arises not from the contract but from the confidential relationship between the parties.  Mr Justice Megarry put it this way in Coco v A.N. Clark (Engineers) Limited  [1968] F.S.R. 415, 419:

"In my judgment, three elements are normally required if, apart from contract, a case of breach of confidence is to succeed. First, the information itself, in the words of Lord Greene, M.R. in the Saltman case on page 215, must “have the necessary quality of confidence about it” . Secondly, that information must have been imparted in circumstances importing an obligation of confidence. Thirdly, there must be an unauthorised use of that information to the detriment of the party communicating it. I must briefly examine each of these requirements in turn."

The key phrase is "circumstances imparting an obligation of confidence".  The signing of a confidentiality or non-disclosure agreement can indeed be one of those circumstances but it is not essential.  There are many circumstances in which an obligation of confidence can arise where there is no agreement at all.  Consulting a patent attorney about a patent for an invention is one obvious example.  Finding documents in the street marked "Top Secret" or "Confidential" would be another.

If you want to rely on the law of confidence, print a form in duplicate on no carbon required paper with boxes for:

• The name and full postal address, job title, email, telephone and other contact details of the confidante and those of his or her employer if they are different.
• Identify the information to be delivered and the way in which it is to be passed (that is to say, private conversation, whether it is is a document and if so what it contains).
• An acknowledgement that the information has been disclosed in confidence.
• A finite period in which the confidante can contend that the information is not confidential at all and a rapid and cost-effective way of resolving such contentions such as expert determination or expedited arbitration.
• The use to which the information may be put.
• A deadline for the return of confidential documents and may have been made.
• Submission to the jurisdiction of the English courts.

Every single confidential conversation and the delivery of every single document should be recorded and logged separately.  If any of the conditions is breached, the confider should call the confidante at once. If it is still not put right the confider should consider legal action including possibly an interim injunction.

Anyone wishing to discuss this article or confidentiality generally should call me on 020 7404 5252 during office hours or send me a message through my contact form.