A confidentiality agreement, also known as a nondisclosure agreement (NDA), is used in most institutions or organizations that bind parties privy to information deemed sensitive to share. Such information is not to be shared with third parties outside of the agreement. It’s a legal and binding contract that, once signed by both parties, the receiving party is restricted from sharing such information unless the other party gives permission to do so.
A confidentiality agreement creates a confidential relationship between parties involved to protect either confidential or proprietary trade secrets. These are non-public business information such as a design, process, or formula that is used as a commercial method to gain business advantage. One excellent example of this is the design of an engine for increased power with low emissions and greater fuel economy. That example is Honda’s VTEC engine.
Since the mid-eighties, Japan has imposed a tax levy on engine displacement. This means the bigger the engine displacement is, the higher the tax imposed on auto manufacturers can become. This is meant to reduce carbon emissions and encourage car manufacturers to make lower displacement engines for increased mileage and better fuel economy while cutting pollution. For this reason, Honda came up with a revolutionary idea on their four-cylinder engine called Variable Valve Timing and Lift Electronic Control, or what is now famously known by its acronym as VTEC. A VTEC engine has become standard on all Honda cars and is loved by car enthusiasts for producing greater power than other car brands with the same engine. Honda has seemingly struck two birds with one stone on their revolutionary engine design: increased power and increased fuel economy at the same time.
However, while much of the basic design on the VTEC engine has become public, Honda holds the trade secret and the patent for the VTEC engine and until now, you will not see any other car brands holding the VTEC badge on their vehicles. This has become exclusively Honda’s trademark and company secret, thanks in part to their engineers and designers who are bound by a confidentiality agreement.
Another famous trade secret that has never been disclosed is the formula for the well-loved soda drink Coca-Cola. The Coke recipe has become the best known valuable information that has never been divulged to the public in its 125 years of existence. There’s a myth that Coca-Cola executives who know the secret formula are not allowed to board the same plane in case it crashes. Even if both of them are flying to the same destination, they’re to ride on separate planes only. Whether true or not, that myth has endured through the years and has become a testament to Coke’s formula that’s so difficult to uncover due to the power of a nondisclosure agreement. Other well-known brands whose secrets have never been shared can be found below:
A Patient Confidentiality Agreement, meanwhile, refers to any personal and medical information on patients receiving medical care from any health institution. These are not to be divulged and should only be kept as internal information to the health-care provider concerned. Unless the patient gives a written consent, none of the health-care providers are allowed to divulge any information relating to patient information to anyone.
Under the United States’ Health Insurance Portability and Accountability Act regulation (HIPAA), a patient’s medical information should be kept confidential at all times. As is standard practice in most countries around the world, medical health records are kept with utmost confidentiality and can only be released with the patient’s written approval. A medical information release form obtained from the patient, therefore, is needed as a written consent that may authorize a health-care provider to look at a medical record. This is done to either compare the patient’s present illness with his or her previous one or to obtain proper diagnosis based on the patient’s medical history.
Dispensing or obtaining a medical information release form is proof of a patient’s consent that will authorize a health-care provider to refer to the patient’s medical record for proper treatment. The physician may diagnose the patient based on his or her medical history to prevent any complications that may arise if the patient happens to be allergic or may not be responsive to treatment with certain medicines. By obtaining a patient’s medical information history, the health-care provider may render a correct diagnosis to the patient seeking treatment. In this case, it’s very important that medicines being administered will not react negatively on the patient’s system; otherwise, it can worsen the patient’s condition and could prove fatal. Doctors, however, cannot just access a patient’s medical history freely without patient consent, hence the need for a medical information release form to access the medical record.
An employee confidentiality agreement works in the same principle as a nondisclosure agreement in that the employee or contractor is made to sign a confidentiality agreement that prevents him from divulging, talking about, or giving away any of the company’s trade secrets. Since employee confidentiality agreements are legally binding, the company has the basis to sue the employee in case of a breach of such an agreement. Signing a confidentiality agreement will emphasize to the employee or contractor the importance and seriousness of such an agreement.
Employee confidentiality agreements are designed to protect the company from private information that may jeopardize its business potentials that may give it an edge in competing with other firms. In some instances, however, employees who transfer to other firms cannot be prevented from sharing information with their new employers. To prevent this, most companies make their employees sign non-compete agreements. Non-compete agreements are crucial for companies who need to protect their trade either from rogue employees or those who have resigned after gaining enough experience and firsthand information about their former employers.
A non-compete agreement is based on a premise of the possibility of termination or resignation of an employee, that he may work for a rival company or start his own business. If that happens, the employee may gain an unfair advantage over his former company by exploiting confidential information he has obtained during the time he was employed in his previous company. An excellent example of this instance was what happened to former Coca-Cola employees who were able to get hold of the giant soda maker’s secret formula. In July of 2006, an assistant for Coke’s global brand director contacted rival soda maker Pepsi by saying she had the secret formula for the sought-after soft drink brand. Together with three other Coca-Cola employees, they tried to sell the brand’s formula in exchange for $1.5 million. In the age of the cola wars, Pepsi would have gained one of the most guarded secrets of all time, the highly valued formula to Coca-Cola’s ingredient. Pepsi, however, contacted the authorities, and in a massive sting operation, police were able to arrest the employees involved. One would wonder how Pepsi did such a thing considering both Coke and Pepsi had been longtime rivals in the cola wars. The answer can be found in both companies’ mutual respect for each other. To ruin Coke would have been useful for Pepsi, but in the long run, such move would eventually backfire and could ruin Pepsi as well, not to mention the backlash from millions of consumers who would criticize Pepsi for such move.
Non-compete clauses in confidentiality agreements, however, have limited legal coverage that may not be applicable to other countries and in some U.S. states as well. In the state of California, only equity stakeholders and not employees are covered by non-compete clauses. There are cases, however, that invalidate non-compete clauses in a confidentiality agreement. For one, if a company is on the verge of bankruptcy and the business have to be sold, the buyer must be given full access to all the company’s confidential information in order for the new buyer to carry on the business practices that customers were accustomed to.
Our confidentiality agreement forms have a lot more examples that users can browse that may either act as guides for drafting your own agreements or you can download for free. You can use these samples by editing or modifying them to your specifications before printing them. These are all free for downloading on both Word Doc or PDF file formats.