Introduction

When you’re dealing with non-disclosure agreements (NDAs), it’s easy to think that once both parties sign on the dotted line, your secret information is safe. But there’s a crucial detail that often gets overlooked: the definition of “Confidential Information.” This seemingly small part of an NDA can have significant implications for your business. If it’s too vague, too broad, or too narrow, it can leave your information unprotected or, conversely, tie your hands in ways you never intended.

Read: Why governing law clauses can make or break your contract

What is “Confidential Information”?

“Confidential Information” generally refers to any data, materials, or knowledge that a company wants to keep private and out of the public eye. This can include a wide range of information, such as:

• Trade secrets: Formulas, practices, processes, designs, instruments, patterns, or compilations of information that provide a business with a competitive edge.

• Business strategies: Plans for marketing, expansion, product development, or competitive positioning.

• Financial data: Budgets, profit and loss statements, forecasts, and other financial reports.

• Customer lists: Information about your clients, including contact details, purchasing history, and preferences.

• Product designs: Schematics, prototypes, and technical specifications for new or existing products.

• Internal communications: Emails, memos, meeting notes, and other internal documents that contain sensitive information.

But here’s the kicker: the NDA’s power to protect this information depends entirely on how “Confidential Information” is defined. This definition sets the legal boundaries for what the receiving party must keep under wraps.

The risk of a vague definition

A vague or overly broad definition of Confidential Information can spell trouble. For instance, a definition like “all business information” might sound like it covers everything, but it’s actually a problem:

• Enforceability issues: Depending on where you're doing business, courts can be hesitant to enforce NDAs with overly broad definitions because they can be seen as unreasonable or impossible to comply with. If the information isn’t clearly defined, a court might rule that the NDA is too vague to be enforceable, leaving your sensitive data unprotected.

• Ambiguity: If the definition is too broad, the receiving party might argue that they didn’t realize certain information was confidential, especially if it wasn’t explicitly labeled as such. This ambiguity can lead to disputes about what information was actually protected under the NDA.

• Dilution of protection: A broad definition can dilute the focus of the NDA, making it less clear what information is truly valuable and confidential. This can weaken your ability to enforce the NDA if the need arises.

The danger of being too specific

On the flip side, being too specific in your definition can cause its own set of problems:

• Exclusion of critical information: If your NDA only names certain documents or data as confidential, you could accidentally leave out other critical information that also needs protection. For instance, if your NDA only says “financial statements” are confidential, what about your strategic plans or customer lists? If they’re not mentioned, they might not be covered.

• Limited scope: A narrow definition could limit what's protected, allowing the other party more freedom to share or use information that doesn't fit within the specified categories. This could weaken your efforts to safeguard your business’s most valuable assets.

• Difficulty in adaptation: Business information evolves over time, and what’s considered confidential today might change tomorrow. A too-specific definition can make the NDA inflexible, requiring constant updates to stay relevant.

Read: Why you should always define deliverables in service agreements

Finding the right balance

The key to a strong NDA lies in finding the right balance when defining Confidential Information. You want the definition to be broad enough to cover all the sensitive information you need to protect, yet specific enough to be enforceable and clear. Here’s how you can achieve that balance:

Use broad categories with examples

One effective approach is to define Confidential Information using broad categories, followed by specific examples. For instance, “Confidential Information includes, but is not limited to, business plans, financial data, customer lists, proprietary technology, and any other information disclosed in writing, orally, or through any other medium that is marked as confidential or would reasonably be understood to be confidential by the nature of the information.”

Include a catch-all provision

To make sure nothing important is left out, consider adding a catch-all clause that protects any information that should reasonably be considered confidential, even if it’s not explicitly listed. This helps safeguard any unexpected information that might come up during the business relationship.

Specify marking requirements

If you can, require that information be marked as confidential when it’s shared. This removes any doubt about what’s protected under the NDA. But also include a clause that covers unmarked information that any reasonable person would recognize as confidential based on its content.

Consider the context

Tailor the definition of Confidential Information to the specific context of your business relationship. For instance, in a technology partnership, you might want to focus on proprietary software code, while in a sales agreement, customer lists and pricing strategies might be more relevant.

Read: The hidden dangers of auto-renewal clauses in contracts

Why this matters for your business

Getting the definition of Confidential Information right in your NDA is crucial for several reasons:

Protecting your competitive edge

If your business strategies, trade secrets, or customer lists fall into the wrong hands, it could seriously harm your business. A clear NDA helps keep these vital assets secure.

Avoiding disputes

Precise definitions help prevent arguments over what’s covered by the NDA. This can save you from costly and stressful legal battles down the line.

Ensuring enforceability

A well-defined Confidential Information clause boosts the chances that your NDA will hold up in court. If the agreement is breached, you’ll be in a stronger position to take legal action.

Building trust

When both parties clearly understand what’s considered confidential, it builds trust and fosters a more collaborative business relationship. Everyone knows what needs to be protected, leading to smoother interactions and fewer misunderstandings.

How Cobrief can help with contract review

Reading your business contracts can feel overwhelming as an owner-manager of a small to medium-sized business. That’s where Cobrief comes in. Cobrief helps business owners and operators review their business-to-business contracts for legal risks.

Upload your contract to Cobrief's AI contract review software, click review and you’ll get a list of all the risks, in plain English. This helps you decide whether to sign, negotiate or reject the terms of your contract, or hire a lawyer. Think of it as a heat map for your contracts.

Get started here.

Conclusion

When it comes to NDAs, the devil is in the details—especially when it comes to defining Confidential Information.

This small but vital part of your NDA can make all the difference in protecting your business’s most valuable assets. Take the time to craft a clear, balanced definition, and you’ll ensure your confidential information stays safe, your business interests are protected, and your agreements are enforceable.