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Confidentiality Agreements: Disclosing v.
Receiving Party

November 10, 2017
MyTechnologyLawyer
Web Edition

Technology transactions (including selling the technology business) often begin with discussions between Seller and Buyer involving confidential information. The best way to protect this confidentiality and trade secret information is with a confidentiality agreement.

The content and legal obligations of the Agreement will depend upon whether you are the disclosing party or the receiving party. The most important issue is defining the Confidential Information with particularity. Sellers will want all financial, marketing, management and technology information disclosed during the sales process defined as confidential. Buyers with the obligation to preserve the confidentiality of the information received will want more narrow definitions.

Sellers will also want to impose very strict disclosure guidelines, often requiring advance written consent before disclosure of any kind. Buyers will want to minimize the bureaucratic burden of formal written consent before every disclosure by authorizing disclosures to key personnel involved in the transaction (e.g. Seller's Counsel, brokers, etc.) in advance.

Additional Seller proposals may include characterizing all Confidential Information as trade secret. This characterization helps Sellers meet the challenge of establishing trade secret status for critical assets. Buyers will want to avoid such contract terms because of the potential liability involved in compromising trade secret information.

Finally, Buyers and Sellers of the technology business will want to respect the Confidentiality provisions in the contracts between the enterprise being sold and its customers during due diligence. If these customers believe their data or trade secrets have been compromised, they may assert claims against the business that will increase the liability of both buyer and Seller. Increased sensitivity is particularly important when the Buyer is a competitor.

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