Software license agreements often contain provisions that impose
restrictions and requirements regarding the use and disclosure of
each party's confidential information. Customers should
consider whether the confidentiality obligations are reasonable and
practicable for the particular circumstances of the
Confidentiality provisions impose restrictions and requirements
on a contracting party (the "Receiving Party") regarding
the use and disclosure of the confidential information of the other
party (the "Disclosing Party"). Those obligations can be
adjusted to reflect the nature of the Disclosing Party's
confidential information, the manner in which the Receiving Party
will access and use the information, and the potential risks to the
Disclosing Party if the information is misused. For example:
confidential information: the information to
be treated as confidential might be defined broadly (e.g. all
non-public information about the Disclosing Party or its business)
or narrowly (e.g. only information that is expressly identified in
writing as confidential).
permitted use: the purpose for which the
Receiving Party may use the information can be specific (e.g. as
reasonably required to use the licensed software) or general (as
reasonably required to perform obligations and exercise rights
under the agreement).
permitted users: there might be restrictions
on the individuals that may use the information (e.g. only the
Receiving Party's employees on a need-to-know basis).
permitted disclosures: there might be
restrictions on the Receiving Party's ability to disclose the
information to other persons (e.g. no disclosure to contractors or
service providers) or requirements for mandatory disclosures
required by law (e.g. prior notice to the Disclosing Party of the
protection/standard of care: the Receiving
Party's obligation to protect the information might be absolute
or limited to a specific standard of care (e.g. the same measures
the Receiving Party uses to protect its own confidential
information, but not less than reasonable care).
duration: the confidentiality obligations
might last for a specified period only (e.g. five years after
disclosure of the information) or until each item of information no
longer qualifies as confidential.
exceptions: the confidentiality obligations
might not apply to certain kinds of information (e.g. information
that is already known to the Receiving Party or is subsequently
obtained by the Receiving Party from another source that is not
subject to confidentiality obligations).
Confidentiality provisions usually require the Receiving Party
to return or permanently delete and destroy all records of the
Disclosing Party's confidential information in the Receiving
Party's possession or control when the Receiving Party no
longer has a legitimate need to use or retain the information or
when requested to do so by the Disclosing Party. There are often
exceptions that permit the Receiving Party to retain records of
information for legal compliance purposes.
Liability for breach of confidentiality obligations is often an
exception to contractual liability exclusions and limitations,
which means that the Receiving Party faces a risk of unlimited
liability for all damage and loss suffered by the Disclosing Party
as a result of the Receiving Party's breach of confidentiality
obligations. In addition, confidentiality provisions often give the
Disclosing Party special enforcement remedies, including a right to
inspect and verify the Receiving Party's compliance with the
confidentiality obligations and a right to judicial remedies (e.g.
an injunction) to prevent the Receiving Party from breaching the
Confidentiality obligations might require the Receiving Party to
implement new administrative practices for handling the Disclosing
Party's confidential information. In some circumstances, those
practices can be a significant burden and impose unanticipated
costs on the Receiving Party.
Confidentiality obligations in a software license agreement
should be reasonable and practicable for the intended transaction
(including the kinds of sensitive information that will be
disclosed and the manner in which the information will be used). A
customer should carefully consider the administrative practices
that will be required to comply with confidentiality obligations
regarding the software vendor's confidential information.
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