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Business Disclosures: When Your Business Discloses Too Much

By Jonathan R. Tung, Esq. on May 09, 2016 9:58 AM

One of the biggest problems that an in-house lawyer will have to address is what to do with inadvertent business disclosures of valuable company information.

In fact, many of these disclosures can be made (mistakenly) by your business in an attempt to build strong business relations. Sounds good. But what do you do to address problems that are sure to arise due to good-faith disclosures?

How Problems Begin

It usually starts like this. Your company, a fresh start-up, small business, or closely held corporation, develops close commercial ties with other companies in the industry sector. Executives start maintaining repeat business and pretty soon dealings become commercial relationships. Goodwill starts to build up and higher ups start to relax a little too much: they start disclosing valuable information -- the kind of information that other companies can profit from.

The Damage Has Begun

How much does your client trust his friends in the industry? It doesn't really matter because by that time, you'll need to step in to mitigate the damages. This is bad. Better is to fix the problem before the information gets leaked in the first place.

Formal Agreements

It is always easier to begin a relationship broaching a formal agreement that will control how the parties will interact in the event of inadvertent disclosure of private commercial information. Imagine approaching this topic several years into the relationship -- irreparable harm will follow.

Choices, Choices: "Trade Secrets" vs. "Confidential Business Information"

Classic contract provisions will apply to all agreements your client enters into with other business entities, so great care is required at every step. A recurring strategy within the community is to use the blanket description "trade secret" to cover all information that is to be disclosed within a mutually understood agreement, or through a mistaken disclosure.

But one alternative that makes more sense is to classify that information as confidential company or business information. Since more jurisdictions presume that information is important if it is disclosed between contract parties, it will be easier to meet the confidential business information standard than the "trade secret" standard.

NDAs and Non-Competes

Nondisclosure Agreements (otherwise known as NDAs) and Non-competes are also useful provisions to include in your agreements because they can, depending on the default rules of your jurisdiction, even restrict the actions of third parties who might disclose or make direct use of affected information. More importantly from a time point of view, the NCA restricts other parties from entering into the market and competing with you whilst using your information. Standard times are between a year and two years.

The trick is keeping maintaining a mindset that looks forward to possible times when your client's ideal relationship with others companies in the industry might go sour.

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