Confidentiality Clause

A confidentiality clause is a clause in a contract that restricts the disclosure and use of sensitive or confidential information between parties. It gives guidelines for dealing with confidential information and safeguards trade secrets, business information, intellectual property and other proprietary information.

How It Works

A confidentiality clause defines what information counts as confidential, who can access it, how it can be used and how long confidentiality obligations last.

The clause usually includes exceptions too. Information that's already public doesn't get protected. Information you're legally required to disclose gets carved out. Confidentiality clauses can appear in larger agreements or as part of a separate Non-Disclosure Agreement (NDA).

Why Legal & CLM Teams Should Care

Companies share sensitive information constantly with customers, vendors, employees, consultants and partners. Without contractual protection, that information gets disclosed, misused or handed to competitors.

A confidentiality clause sets out clear obligations on how to treat information. And it gives you a legal way to take action if somebody misuses confidential data. Strong confidentiality provisions are most important to protect competitive advantages.

If a vendor gets hold of your pricing strategy or your technical roadmap and gives it to a competitor, the damage is hard to measure but easy to experience. And that’s why legal teams need to be able to see who has access to sensitive information and what the confidentiality obligations really mean.

Example Use Case

A software company shares product roadmaps, technical documentation and customer lists with a potential business partner during partnership negotiations. Before any information is exchanged, the parties enter into a confidentiality clause that limits the use of the information and prohibits the passing on of the information to third parties. The clause says that information will be kept confidential for three years after discussions end.

How It Relates to Adjacent Concepts

Confidentiality provisions are included in commercial agreements and are considered alongside non-disclosure agreements, data processing agreements and intellectual property provisions. “Through the contract lifecycle, they help protect sensitive information and help them comply with internal security and privacy requirements.

FAQs

What does a confidentiality clause do?

Restricts how sensitive information can be used and disclosed by the receiving party.

Is a confidentiality clause the same as an NDA?

No. A confidentiality clause is a provision within a contract. An NDA is a standalone agreement focused primarily on confidentiality obligations.

What information does a confidentiality clause typically cover?

Trade secrets, pricing information, business plans, customer data, financial information, product designs and technical documentation.

Related Terms

• Non-Disclosure Agreement
• Data Processing Agreement
• Contract Playbook
• Indemnification Clause
• Master Service Agreement
• Contract Lifecycle Management

Protect sensitive business information and streamline contract management with SpotDraft Contract Management. Or request a demo to see how teams manage contracts from drafting to execution in one platform.