Use and disclosure of confidential information: Overview, definition, and example
What is the use and disclosure of confidential information?
The use and disclosure of confidential information refers to how private, sensitive, or proprietary information is handled by individuals or entities that have access to it. Confidential information typically includes business secrets, intellectual property, financial data, customer lists, trade secrets, and any other type of information that is not generally available to the public and is meant to remain private.
"Use" refers to how this information is employed within the scope of an agreement or business relationship. "Disclosure" refers to revealing or sharing this information with others outside of the designated parties. Both use and disclosure of confidential information are often governed by legal or contractual agreements, such as non-disclosure agreements (NDAs) or confidentiality clauses in contracts, to protect the information from being improperly shared or misused.
These terms are especially critical in business contexts, such as during negotiations, joint ventures, partnerships, or employment, where sensitive data must be handled carefully to avoid risks such as competitive harm, legal liability, or reputational damage.
Why is the use and disclosure of confidential information important?
The proper use and disclosure of confidential information is important because it ensures that sensitive business data is protected and not exposed to unauthorized parties. Failure to protect confidential information can lead to significant negative consequences, including:
- Competitive disadvantage: If confidential information is disclosed, competitors may gain access to trade secrets, strategies, or other proprietary information, potentially diminishing the business’s competitive edge.
- Legal risks: Unauthorized disclosure of confidential information can lead to legal actions, including breaches of contract or violations of data protection laws.
- Loss of trust: Mismanagement of confidential information can result in the erosion of trust between business partners, clients, or employees, damaging relationships and reputations.
Contracts and legal frameworks addressing the use and disclosure of confidential information help prevent these risks by outlining the specific rules and consequences for mishandling such information.
Understanding use and disclosure of confidential information through an example
Imagine a technology company that has developed a new software product. The company enters into a partnership with a distributor to sell the software. As part of the agreement, the distributor is given access to the company's proprietary software code to understand the product better and provide support to customers. However, the company requires the distributor to sign a non-disclosure agreement (NDA) to ensure that the software code is used only for the purpose of selling and supporting the product and not disclosed to competitors or used in any unauthorized manner.
In another example, a financial services company hires a consultant to advise on a new investment strategy. The consultant is given access to confidential client data to help with the strategy. The company and consultant sign a confidentiality clause that prohibits the consultant from disclosing the data to third parties and restricts the consultant's use of the information to the scope of the project.
An example of a use and disclosure of confidential information clause
Here’s how a use and disclosure of confidential information clause might appear in a contract or agreement:
"The Recipient agrees to use the Confidential Information solely for the purpose of evaluating and performing the obligations under this Agreement. The Recipient shall not disclose the Confidential Information to any third party without the prior written consent of the Disclosing Party, except as required by law or to employees, agents, or contractors who need to know the information to carry out the purpose of this Agreement, provided that such individuals are bound by confidentiality obligations no less restrictive than those set forth in this Agreement."
Conclusion
The use and disclosure of confidential information are fundamental aspects of maintaining trust and protecting sensitive data in business relationships. By clearly defining the terms of use and disclosure in contracts, businesses can ensure that their confidential information remains secure and is not misused or improperly shared. These provisions help mitigate the risks of legal consequences, competitive harm, and loss of reputation, providing businesses with a legal framework to protect their valuable assets. Ensuring proper handling of confidential information is essential for maintaining long-term business success and fostering trust between parties.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.