What to Do When Your Business' Confidentiality Agreement Is Violated

Vintage photo of two businessmen with their fingers to their lips indicating discretion.

A confidentiality agreement, also known as a non-disclosure agreement or NDA, is a common legal document many businesses use to protect trade secrets, proprietary information and intellectual property. Many employers require associates, contractors, and employees to sign a confidentiality agreement as part of their employment contract. In addition, disclosing confidential information is integral to the M&A process, and a confidentiality agreement protects the seller's intellectual assets throughout negotiations.

While growing a business requires sharing information internally, sharing this information with a competitor or using the information to start a competing enterprise is considered theft. Violating a confidentiality agreement is a breach of contract that can result in termination or legal action.

If you suspect that your business' confidentiality agreement has been breached, first determine what information has leaked, then review the confidentiality agreement to ascertain whether the incident meets the criteria of a breach as laid out in the agreement. If a breach has occurred, it is important to take action, both to mitigate potential damages and to protect the company's future.

1) Investigate

The first thing you will need to do is investigate the situation by searching for answers to the following:

  • How was the information obtained or leaked? Was it intentional?
  • Who was involved (a business partner, competitor, employee)?
  • What was the information used for?
  • How has the leak affected the business financially? Generally?

You will also need to gather evidence of the breach, persons involved, and proof of damages. An attorney can help you with this.

2) Consult your Business Attorney

Present your information and evidence to your attorney. Your attorney will review the evidence and recommend the best course of action. If there is enough evidence to warrant legal action, it will typically originate with a “cease and desist” or “demand” letter, ordering the offender to stop using the information. The letter should include a reminder of the original confidentiality agreement, a summary of the proof of the breach, the specific action requested, and a warning of additional action if the letter is not heeded.

3) Take Legal Action

If the letter is ignored and the offending party continues to use or share the proprietary information, your attorney may pursue a lawsuit.

Grounds for the lawsuit can include:

To prevent irreparable damage from occurring during the litigation process and thereafter, your business attorney may also pursue a temporary restraining order (TRO), preliminary injunction and permanent injunction to stop the confidential leak or the use of trade secrets.

  • Temporary restraining order (TRO): A temporary restraining order is a short-term measure to stop someone from doing something (or used to order them to do something), typically in-effect until the court is able to issue a preliminary injunction. Temporary restraining orders may be issued without a court hearing and without informing the opposing party and the standard TRO length is generally 14 days.
  • Preliminary injunction: In general, preliminary injunctions are meant to preserve a status quo of action or inaction, pending a final decision of a case. These types of injunctions typically remain in effect, unless otherwise modified or dissolved, during the pending court case. In some cases, the conditions established by the preliminary injunctions are continued as permanent arrangements.
  • Permanent Injunction: To uphold a status of action or inaction permanently, issued as final judgments, or rulings in a case.

Your Best Defense: Prevention and Enforcement

The best way to prevent a breach of confidentiality is to not only utilize a formal confidentiality agreement, but to enforce it, and make sure all parties involved understand the consequences for violation. Be intentional in protecting trade secrets, proprietary information and intellectual property. Your new employee orientation, employee training, and your employee handbook should document the confidentiality agreement and the potential consequences of breaching it.

Examples of breach of confidentiality include:

  • Termination: A breach of the confidentiality agreement is a breach of the employment contract, and can result in termination;
  • Legal action: If a breach is proven, it is within the rights of the employer to take legal action. In extreme cases, state or federal authorities can bring charges of theft, which is punishable by fine or imprisonment;
  • Monetary damages: If it is proven that the breach resulted in a loss of revenue or general damage to business, the employer can pursue monetary damages.

For More Information, Contact Hendershot Cowart P.C.

Confidentiality or NDA agreements are invaluable elements to a comprehensive intellectual property protection strategy. For more than 30 years, the business law attorneys at Hendershot Cowart P.C. have been reviewing, drafting, implementing, and enforcing confidentiality and non-disclosure agreements, as well as many other contractual agreements needed by businesses, healthcare practices, and start-ups. Contact our Houston law firm today, and let us put our legal experience to work for you.

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