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Affiliate confidential information – protected or not?

(See also the sample clauses.)

When negotiating a nondisclosure agreement (NDA), a disclosing party might plan on disclosing not only its own confidential information, but also that of its subsidiaries and other corporate affiliates as well.

On the other hand, a receiving party will naturally want to know in advance the specific companies to which it owes confidentiality obligations.

Heads-up: It could be dangerous to make a blanket statement that confidential information of the disclosing party’s affiliates will be deemed confidential. Here’s a hypothetical scenario:

  • Completely separate from the transaction contemplated by the nondisclosure agreement, someone in the affiliate organization gives information to someone working for the receiving party. Neither person knows anything about a nondisclosure agreement or has any sort of confidentiality obligations in mind.
  • The receiving party makes use of the affiliate’s information in its business.
  • Later, the affiliate decides that it wants to claim that the information was confidential, and prevent the receiving party from using it.
  • The receiving party might have valid defenses such as estoppel, but who wants the grief (and expense) of having to litigate the question?
  • The affiliate could pop up out of nowhere and claim that, my goodness, the information was confidential, and you (the receiving party) are in breach of the NDA.

A sledgehammer solution to this problem would be to categorically exclude affiliate information from protected status. But that’s probably not the best approach.

It might well be that the interests of both parties can be balanced by requiring affiliate information to be “conspicuously” identified as confidential in order for it to be protected.

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