Confidentiality agreements, sometimes called secrecy or non-disclosure agreements, are contracts entered into by two or more parties in which some or all of the parties agree that certain types of information that pass from one party to the other or that are created by one of the parties, or in some cases by all of the parties, will remain confidential. Confidentiality agreements perform several functions. First and foremost, they protect sensitive technical or commercial information from disclosure to others. One or more participants in the agreement may promise to not disclose technical or commercial information received from the other party.
Turkish law does not explicitly regulate or address confidentiality agreements and there is no established precedent of the Court of Appeals on this matter. Article 19 of the Turkish Code of Obligations (“TCO”) sets forth the “freedom of contract” principle. Accordingly, the subject of an agreement may be freely determined within the limits of the law. The limits of the “freedom of contract” principle are stipulated under Article 20, which provides that the subject of the agreement cannot violate the statutory provisions of law, public order, personal rights or ethics. Legal or physical impossibility of an agreement is also among the limitations set forth by the TCO. Hence, confidentiality or non-disclosure agreements are legitimate unless the subject matter of the relevant agreement does not fall within the scope of the limits applicable to the freedom of contract.
A confidentiality or non-disclosure agreement is crucial for an inventor or any other party who needs to protect confidential information. Such agreements are often used when a company or individual has a secret process or a new product that it wishes another company to evaluate as a precursor to a comprehensive licensing agreement or, perhaps one party wants to evaluate another’s existing commercial filings, company books and documents or products for a new and different application.
Confidentiality agreements define exactly what information can and cannot be disclosed. This is usually accomplished by specifically classifying the non-disclosable information as confidential or proprietary. The definition of this term is, of course, subject to negotiation. As one would imagine, the company or individual disclosing the confidential information (i.e., the “discloser”) would like the definition to be as all-inclusive as possible; whereas the company receiving the confidential information (i.e., the “recipient”) would like to see as narrow a definition as possible.
The type of information that can be included under the umbrella of confidential information is virtually unlimited. Any information that flows between the parties can be considered confidential - data, know-how, commercial information, prototypes, engineering drawings, computer software, test results, tools, systems, and specifications. This list is certainly not exhaustive but does illustrate the breadth of items that can be deemed confidential.
Most confidentiality agreements exclude certain types of information from the definition of confidential information. It is essential that the recipient includes these exceptions in the confidentiality agreement. Some commonly employed exceptions are information that the recipient can demonstrate were in their hands prior to receipt of the information in question from the discloser; information that becomes known to public through no fault of the recipient; information that becomes known to the recipient from a third party that has a lawful right to disclose the information; information that was public knowledge before the disclosure of the information to the recipient; and information independently created by the recipient.
The confidentiality agreement can also limit each party’s use of the confidential information. For example, a confidentiality agreement may provide that the confidential information is to be used only to evaluate the discloser’s product and cannot be used for the purposes of the recipient’s own business.
An important point that must be covered in any confidentiality agreement is the standard by which the parties will handle the confidential information. Usually, each party will treat the other’s confidential information in the same way that it treats its own. However, this treatment is acceptable only if the recipient has set standards for handling confidential information, such as limiting access to the information or other methods of preserving secrecy. Therefore, before signing a confidentiality agreement, it would be prudent to investigate the recipient’s practices regarding maintaining secrecy of its own information. If those practices are sub-standard or even non-existent, the confidentiality agreement should contain specific provisions concerning limiting access to the confidential information (e.g., clearly marking the information “confidential”).
The agreement must establish a time period during which disclosures will be made and the period during which confidentiality of the information is to be maintained. Some poorly drafted confidentiality agreements will only specify one of these time periods. Furthermore, even if both time periods are specified, it is important to make sure that a starting point is established for the time period during which confidentiality of the information is to be maintained. If this starting point is not set forth, problems can occur down the road. For instance, a confidentiality agreement that specifies that disclosures will be made over a two-year period and that the information must be kept confidential for three years may not be as effective as those with explicit timing provisions. If, in the case of a confidentiality agreement where no starting point is specified for the confidentiality term, a company receives the confidential information on the day before the disclosure term ends, does the company have to keep the information confidential for three years or for one year from that date? In such circumstances, it is to the recipient’s advantage to make the confidentiality term start with the beginning of the disclosure time period, whereas for the discloser it would be advantageous to have the confidentiality period start with the date of disclosure of the confidential information. The point is that the confidentiality agreement should specifically state the starting date for the confidentiality term in order to avoid any ambiguity.
Furthermore, confidentiality agreements should expressly state that no implied license to the technology or information is to be granted to the recipient and that all tangible embodiments of the information (e.g., models, data and drawings) should be returned upon request and in no event later than the end of the agreement term, and that no copies shall be retained by the recipient.
If the confidential information is revealed or disclosed to another individual or an entity, the injured party has cause to claim a breach of contract and can seek injunctive and monetary damages. Common practice is to set forth a penalty applicable in the event of infringement of confidentiality. However, sometimes the parties to a confidentiality agreement do not stipulate the consequences of the violation of confidentiality. As noted above, since the TCO does not expressly address confidentiality agreements. Therefore, the violation of a confidentiality agreement is subject to the general terms and conditions set forth under Article 96 et seq., according to which the violating party may be held liable to reimburse and compensate the injured party for the damage caused due to the violation of the confidentiality obligation. However, it may not be easy to determine the damage and in such cases the injured party may not be compensated fully or partially. The sanctions of a confidentiality agreement without a penalty clause may not have a deterrent effect, since in some cases the determination of the damages occurred as a result of the violation of confidentiality is challenging.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.