Confidentiality (Materials Transfer) Agreement

Confidentiality (Materials Transfer) Agreement

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A specific situation, highly detailed, template for protecting secret and very valuable material (eg scientific formulations and new materials in industry) and research data to be supplied for testing, analysis, evaluation or potential sale or licensing. Regulates their transport, handling and dealings with them.

Product Details

Author: Noric Dilanchian
Date revised: 16 April 2013
Format: Agreement
Agreement layout: Traditional Agreement
Agreement bias: Commercialisation Entity
File type: Word
Pages: 13
Field: Intellectual Property, Innovation, Commercialisation
Tags: confidential information, non-disclosure agreement, NDA, materials transfer
Product ID: td00007

Other template features

This template is specifically designed for sharing of materials and formulations which if not protected are exposed to reverse engineering, loss of commercial opportunity or damage to the supplier's patent or licensing strategy. It imposes very extensive operational or practical obligations.

For more information on this template product see the Overview, User Guide and Author tabs below.

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Confidentiality (Materials Transfer) Agreement

This template confidentiality agreement:

  • has a long form agreement layout - rather than a short form layout;
  • suits situations where one party is providing to a recipient or recipients confidential information in the nature of materials and supporting test results which the provider wishes to protect;
  • is useful to a provider of confidential information needing to detail, customise or finesse an agreement, including to:
    • cover specific material or test results (ie research data),
    • cover potential duration issues which may affect an agreement's enforceability,
    • impose very precise and auditable disclosure procedures,
    • potential specify a sum for payment, and
    • avoid intermingling of intellectual property owned by two or more parties; and
  • is for use where the material or test results, or both, are for testing, analysis, evaluation or potential sale or licensing.

This template confidentiality agreement is for general use where a provider of confidential information wishes to protect it on supplying it to a recipient. The obligations can be stated to bind individuals or incorporated entities or individuals and their related company or organisation (a concept defined broadly).

Selecting between mutual and non-mutual agreements

The template is written from the perspective of the provider of confidential information, ie the material and the test results. While its bias favours the provider, the rights and obligations here on each side, subject to appropriate customisation, are usually accepted as being fair and reasonable. In this regard note that in favour of the recipient clause 4 has an extensive statement of exceptions to the agreement's confidentiality obligations. In contrast, as serious obligations on the recipients of the confidential material and test results, note the warranties in clause 8 and the supporting indemnity clause 9.

Confidentiality agreements and obligations can be imposed so that they are either "one way" (ie for the benefit of one party) or "two way" (ie working to the benefit of each party). Mutual agreements are often used where parties are in collaboration and are providing confidential information to each other. This template is a one way agreement, appropriate for situations where only one party is providing confidential information. In other words there is not a mutual exchange of confidential information.


Template clauses and provisions

PARTIES
RECITALS
1. INTERPRETATION
1.1 Definitions
1.2 Construction
Scope of Obligations
2. DURATION
3. PROCESS FOR USE OF MATERIAL AND CONFIDENTIAL INFORMATION
3.1 Supply of Material
3.2 Purpose of Limitation
3.3 Safety
3.4 Directions
3.5 Disclosure procedure
3.5(a) Purpose
3.5(b) Due Diligence
3.5(c) Stamping
3.5(d) Security Systems
3.5(e) Degree of Care
3.5(f) Need to Know Restriction
3.5(g) Storage
3.5(h) Possession
3.5.(i) Parallel Obligation Requirement
3.6 Liability
3.7 Notice of Breach
3.8 Legal Compliance
3.9 Ethical Compliance
3.10 No Patent
3.11 Notice of Compliance
4. FINANCIAL
5. CONFIDENTIALITY
6. PUBLICATIONS
7. INTELLECTUAL PROPERTY RIGHTS
8. WARRANTIES
9. INDEMNITY
10. RETURN OR DESTRUCTION
11. MANAGEMENT - PUBLIC ANNOUNCEMENTS
12. INFRINGEMENT
13. INJUNCTION AND OTHER REMEDIES
14. GENERAL
14.1 Survival
14.2 Further Assurance
14.3 Relationship of Parties
14.4 Assignment
14.5 Rights Cumulative
14.6 Severability
14.7 Composition
14.8 Variation
14.9 Waiver
14.10 Notices
14.11 Governing Law and Jurisdiction
SIGNATURE BLOCK

ATTACHMENT
Confidentiality Undertaking and Deed Poll

Selecting between short or long forms

Given its detail, this template confidentiality agreement tends to best suit situations where a higher certainty of legal protection is required and where formality will not be an obstacle to deal making. To illustrate, the template can suit situations where complex confidential information is involved such as a detailed new chemical formulation, technical specifications for industrial machinery, or concept document or market intelligence for a new software or ecommerce venture.

Select carefully. Sometimes a less detailed agreement layout is appropriate. But be aware that adopting too light an approach can provide insufficient protection in some situations.

The benefit of a less detailed or short form letter is that its legal content can provide broad protection while being easy to understand. This reduces negotiation time, speeds up the process to signature, and minimises costs. It also improves communication between contracting parties, making disputes less likely by giving each party a clear understanding of what is expected of them. In turn, this builds trust into the commercial relationship and strengthens its foundation.

Must the duty of confidence be express and in writing?

An obligation does not have to be expressly stated (it can exist even if it is only implied), though expressly stipulating an obligation is desirable.

An obligation does not have to be stated in writing. It is not essential to have a written confidentiality agreement (AKA non-disclosure agreement), though having one in practical terms is very desirable.

In practice and law, there is no distinction between a "confidentiality agreement" and the Americanisms – “NDA” or “non-disclosure agreement”. The term “confidentiality agreement” makes plain the history of this area of the law as being linked to its origin in English equity law, ie confidentiality law.

What provisions should an agreement contain?

A confidentiality agreement should typically define:

  1. what confidential information is covered;
  2. who accepts the confidentiality obligation, and hence is under a duty of confidence; this may be both an individual and the individual's company or organisation;
  3. what field of law governs the obligation, eg contract law, confidentiality law, and equity law relating to undertakings;
  4. for what duration must the confidential information remain confidential;
  5. what use can be made of the confidential information by the recipient;
  6. what practical procedures or safeguards must the recipient apply to protect the information; and
  7. what is the governing law.

This list is not comprehensive. It is often the case that topic 1 is of the greatest concern. This is due to the often poor level of definitional work by the persons responsible and their legal advisers.

What is confidential information?

Care should be taken to define the information by asking the question: What confidential information is covered?

The categories or types of confidential information covered by the law are unlimited. They can include existing and future data, records, documents and information, whether disclosed verbally, in writing, or electronic media. For example, they may be new business ideas, concepts for inventions, marketing strategies or financial data.

The types of confidential information most likely to be dealt with by the Company includes particulars of clients, customers, suppliers, employees and contractors, mailing lists, databases, pricing information, financial information, future product and service plans and other information not generally known outside a business.

Clearly not all information amounts to confidential information under equity law. Excluded is information in the public domain. For example, information in books sold in bookstores is clearly not confidential, while information set out in an unreleased report to government may be confidential.

If there is no contract determining the issue, to determine whether information is confidential (and therefore protectable) among the factors courts have considered are the:

  • emphasis on secrecy given by the proprietor in relation to the information (eg marking documents "CONFIDENTIAL", storing them in a limited access situation etc.); [This can be maximised by adopting the procedures specified below, including use of confidentiality statements, written confidentiality undertakings and confidentiality letter agreements.]
  • extent to which the information is known by third parties outside the proprietor's business;
  • value of the information to the proprietor and its competitors;
  • amount of money spent by the proprietor in developing the information; and
  • ease or difficulty with which the information could be properly acquired or developed by others.

The following means for protecting confidential information are ranked in their general order of usual usefulness for legal purposes (as opposed to commercial purposes):

  • create a specific or dedicated long form confidentiality agreement to govern a particular circumstance;
  • create a written and signed confidentiality letter agreement and undertaking, both to cover a specif situation;
  • create an oral confidentiality statement recorded in a file note, diary note or best of all in written communication with the other side (eg in an emal);
  • make an oral confidentiality statement; and
  • remain silent, allow circumstances to merely imply that a duty of confidence exists.

Practical procedures reduce risk

Adopt the following procedures when judgement indicates that it is appropriate, to protect information and maximise the possibility that it will be considered (eg by a judge) to be "confidential information" in a legal sense:

  • ensure contractors as well as new and current employees sign human resource contracts containing confidential information provisions such as non-disclosure obligations, and where appropriate, non-competition obligations which operate while employees are in an organisation’s employ and when they leave;
  • stamp, mark or type "Commercial-in-Confidence" on all documents regarded as confidential (for example see the footer to this guide);
  • where written non-disclosure or confidentiality undertakings are not appropriate, begin discussions by firstly obtaining an oral confidentiality statement (see the following example) and record the fact in a file note or a diary note: "The information I may reveal to you is secret and confidential information. I am only prepared to reveal it to you on the express condition that you will keep it secret and confidential. You must agree to this condition before I proceed."
  • ensure licensees, joint venturers, subcontractors and others having contact with confidential information sign confidentiality undertakings or agreements and (where appropriate) non-competition obligations;
  • limit access to a "need to know basis" for confidential information ie establish levels of privilege;
  • institute sign-out procedures for library borrowings and sign-in procedures for those who access a confidential database;
  • place security messages or warnings in documents, document storage rooms, intranets, research labs and elsewhere as appropriate;
  • establish passwords, keys , locks and other security systems to regulate access to and disposal of information;
  • expressly note the confidentiality of information in emails, faxes, letters, minutes of a meeting or other written records or documents; and
  • document confidential information procedures in a policy and procedures manual.

User Guide

On each occasion this template is to be used, customisation is needed. Once customisation is complete, check thoroughly and ensure drafting instructions (eg open square brackets) and user guides have been deleted. Practical tasks for customisation of confidentiality agreements are briefly discussed below.

Agreement date

Insert the Agreement date or ensure it is inserted when all parties have executed the agreement. This is the date the Agreement will apply from once signed by the parties.

Parties

Insert the name, number and address of the parties and repeat the names in the signature block. For better identification, it can be best to insert both physical and electronic addresses, eg email. It is usually best to specify a street address rather than a postal address.

Sometimes there will be more than one other party (ie multiple recipients), eg an individual and his or her company or two or more companies.

The complex part of this task is to examine the identity of the other party or parties. Clearly, you need the appropriate party or parties (ie the addressee aka "the other party") to be bound to an agreement or undertaking on acceptance. You may be dealing with an individual or one who also has involved a company or other organisational affiliation. It is for this reason that the template contains the words “if any” after references to an organisation. There are many possibilities or combinations. You may be dealing with an individual, a company, a partnership, a trust, a hybrid of these or some other entity, organisation or business structure.

For Australia:

  • you can conduct a search at www.search.asic.gov.au/gns001.html to check the name, Australian Company Number (A.C.N.), Australian Business Number (A.B.N.), and other details of the addressee.
  • It is a good idea to double check the Australian Business Number (A.B.N.) details at: www.abr.business.gov.au/Index.aspx.
  • It is a good idea to make the above links favourites for drafting, checking and dealing with contracts and related legal communication. They should be used to check particulars of an addressee, organisation or company every time a contract or communication is prepared with the intention that the contract or communication be legally binding.

Define the confidential information

The user guide for the recitals states: "Recitals set the framework of an agreement. Customise as needed, eg include additional specific information such as the sample clause included under recital B below." The sample clause in question deals with a patent.

The wording of the "Purpose" of agreement in recital C should be checked for adequacy or suitability for the specific situation.

The "Material" is defined in clause 1.1(a). There is a balance to strike between a brief reference to that confidential information and, on the other hand, a dangerously detailed definition of it (thereby potentially risking giving it away before the Agreement accepted)..

Until acceptance never disclose or attach any valuable confidential information.

Duration

The duration clause, clause 2, is of the cascading duration form.

The benefit of having a stated duration in clause 2.1 is that it provides clarity as regards the maximum extent of the duration, subject to any legal attack on the grounds that the duration is unreasonably long, comprising an unlawful restraint of trade. Replace "twenty (20)" in clause 2.1 with a different duration if 20 years is potentially excessive or unreasonable. This long duration can suit, for example, technology for which a patent is about to be granted, thus warranting a duration (during which the obligations imposed by the Agreement are to apply) comparable to the patent monopoly period.

As a fallback position from the higher ground of the longer duration in clause 2.1, clause 2.2(a)-(c) provide a maximum to minimum range of durations, all of which apply subject to any successful legal attack on clause 2.1 or 2.2. All periods in clause 2.2(a)-(c) can be customised. A cascading duration clause is useful in some jurisdictions (eg Australia) for technical legal reasons, ie it permits a court to read down the duration clause to the shortest reasonable duration when a longer duration is otherwise unenforceable on the basis, for example, that it is unreasonably long, comprising an unlawful restraint of trade.

Clause 2.3 is an attempt to provide for a "lead-time" advantage in the event the Confidential Information is disclosed to the public or becomes no longer capable of being confidential in nature. This recognises the springboard effect gained by recipients from early disclosure to them under the Agreement by the provider, here the Commercialisation Entity.

Financial

This clause has two alternatives. The first involves payment by the Recipient to the Commercialisation Entity by installments at key trigger points. The second involves no payment.

Obligations

The template imposes very precise and auditable disclosure procedures. This is made particularly evident by these headings in clause 3:

3. PROCESS FOR USE OF MATERIAL AND CONFIDENTIAL INFORMATION
3.1 Supply of Material
3.2 Purpose of Limitation
3.3 Safety
3.4 Directions
3.5 Disclosure procedure
3.5(a) Purpose
3.5(b) Due Diligence
3.5(c) Stamping
3.5(d) Security Systems
3.5(e) Degree of Care
3.5(f) Need to Know Restriction
3.5(g) Storage
3.5(h) Possession
3.5.(i) Parallel Obligation Requirement
3.6 Liability
3.7 Notice of Breach
3.8 Legal Compliance
3.9 Ethical Compliance
3.10 No Patent
3.11 Notice of Compliance

It is also evident in these clauses:

  • prohibition in clause 6 against publications,
  • provisions in clause 7 to avoid intermingling of intellectual property owned by two or more parties,
  • prohibition in clause 10 against public announcements,
  • obligation in clause 11 to return or destroy confidential information,
  • obligation in clause 12 to give notice of breach, and
  • injunction rights under clause 13.

Warranties and indemnities are not always found in confidentiality agreements. They appear in this template. Warranties in clause 8 and the supporting indemnity in clause 9 appear in this template, justified by the existence of highly valuable confidential information. By their nature disclosure of the material or test data may lead to a complete collapse in the benefit or value they provide.

Notices and Governing law and jurisdiction

Customise clauses 14.10 and 14.11 as appropriate.

Further customise as appropriate

Customise the template to suit specific circumstances as appropriate. It is dangerous to use a template as if it is a solution for all situations without customisation. Customisation is critical because there are many variables. They include the type of information, its value, the document layout most suitable for the circumstances and the purpose of the required document.

Additional user guide information is set out in the template.

Noric Dilanchian

Company: Dilanchian Lawyers & Consultants
Tel: +61 2 9269 0229
Skype: noricd

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Managing Partner of Dilanchian Lawyers and Consultants, Noric founded Annexium. Like our other authors, he has a breadth of experience in continuing professional education, having presented from the early 1990s in Australia, United States, Malaysia, Singapore and Europe.

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