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Marking of confidential information

In confidentiality provisions (for example, in nondisclosure agreements), disclosing parties and receiving parties often have opposing desires about whether to require that confidential information must be marked as such in order to be protectable.

Disclosing parties usually agree to a marking requirement as long as catch-up marking is allowed.

This posting lists some arguments pro and con; it also provides “in the wild” examples of provisions of this kind as found on the Web.

Arguments for and against a marking requirement

Here’s an example of an argument that the receiving party might make in favor of a marking requirement:

Look, you’re going to be giving us information that’s confidential, but also information that isn’t. We don’t want our employees to have to guess which is which, or what they can do with particular information.

Suppose you gave us information that wasn’t marked at all. Or suppose you let us see and copy unmarked information. We shouldn’t have to worry about whether someday you might sue us for using the information.

Also, we also like our people to get ‘just-in-time training’ reminding them of their confidentiality obligations.

So if you consider information to be confidential, we need you to mark it as such before you give it to us. Otherwise, we don’t want the information to be subject to any confidentiality obligations.

Here’s an example of an argument that the disclosing party might make against a marking requirement:

Look, we don’t necessarily mark all our internal information as confidential. We don’t want to have to take on the operational burden of making sure everything we give you is marked.

This would be especially true if we were to let you look at and copy our internal files.

So we need you to treat any information you get from us as confidential until you can prove it’s not.

Editorial comment: Disclosing parties have a practical motivation for marking their protected information. In court, the disclosing party claiming that its information is confidential will usually tout its marking of information as indirect evidence of confidentiality. Conversely, courts can sometimes interpret the disclosing party’s failure to mark information as indirect evidence that the disclosing party didn’t really consider the information to be confidential. So agreeing to a marking requirement might not be that big a deal for the disclosing party after all.

Catch-up marking procedures

If the disclosing party is going to have to mark its confidential information as such as a prerequisite for protection, it will normally want a catch-up marking period for any confidential information it might disclose without a marking, either inadvertently or out of a desire to move the parties’ business along.

But then the issue becomes: What’s the disclosing party’s deadline for doing catch-up marking, after which the unmarked information becomes fair game for the receiving party to use without restriction?

The bright-line approach: Mark within X days, or else

Some confidentiality clauses require catch-up marking to be completed within a stated time — typically five to ten business days, but often as much as 30 days. This is a bright-line approach that favors the receiving party, because if the disclosing party fails to mark it by the stated deadline, the information’s confidentiality restrictions evaporate.

(This assumes confidentiality isn’t separately required by applicable law, for example by HIPAA or the Gramm-Leach-Bliley Act.)

Bright-line tests can be advantageous in business contracts. They make life easier on the people who actually have to do the work, and they promote predictability, which is prized in the business world. But this particular bright-line approach has the potential to damage the parties’ business relationship (assuming one exists). And it’s not clear how much good this bright-line approach will actually do for the receiving party.

Put yourself in the disclosing party’s shoes: If you slip up and forget to mark particular information, the receiving party might claim that you’ve lost all right to control the use of the information. It doesn’t matter whether the receiving party would suffer any prejudice by belated marking. The receiving party asserts that the information is no longer confidential, period. If the parties’ relationship is supposed to be a collaborative one, this won’t be a good thing.

The reasonable-time approach

For collaborative relationships, another approach is to allow catch-up marking within a reasonable time. Sure, that can lead to uncertainty about what “a reasonable time” might be. But that very uncertainty can usefully encourage the parties to try to work things out, which in turn can help them preserve their business relationship.

In any case, in a collaborative relationship it’s not a bad thing for the receiving party to call up the disclosing party and ask: Hey, you didn’t mark Document X as confidential; did you intend to do that, or did it just slip through the crack? The disclosing party gets a chance to protect its information, and the receiving party scores points for being a “good” business partner.

Written notice of catch-up marking

If the disclosing party wants to retroactively change the status of particular information from unprotected to protected, the receiving party likely will want to have its attention specifically called to that fact, so that later on it doesn’t unwittingly treat the information as still being unprotected.

Examples of marking requirements

The following agreements include marking requirements for confidential information, several of which contain catch-up marking provisions:

– Dow Chemical Master Collaboration Agreement § 1.4—the on-line version appears to be an incomplete provision, and the marking requirement applies to information first disclosed in a non-written form;

– Ford Global Services Agreement § 8.1(b) and (d), with a catch-up marking provision in § 8.1(c);

– GE Energy Financial Services Nondisclosure Agreement § 1, which includes catch-up marking;

– HP Confidential Disclosure Agreement § 5, which includes catch-up marking;

– IBM Agreement for Exchange of Confidential Information § 1 says that information “should” be marked;

– University of Texas ‘Universal’ Non-Disclosure Agreement § 2, which includes catch-up marking.