CONFIDENTIALITY CLAUSE/AGREEMENT: MAIN PRINCIPLES AND EGYPTIAN LAW PERSPECTIVE
The confidentiality clauses/agreements are essential in any contractual relationship. The importance of the confidentiality clause is to ascertain that all of the parties involved in the agreement will keep and maintain secrecy and high levels of confidentiality regarding all the information disclosed by each to the other, it helps to build trust between the discloser and receiver of the confidential information. Confidentiality Agreement can only be enforced against the contracting parties only, so the disclosure by third party is not protected because the latter is not party to the agreement.
Confidentiality Agreements, can also be referred to as “Non-Disclosure Agreements” or “Secrecy Agreements”, all of which are legal agreements between the Disclosing Party and the Receiving Party, specifying information that one or both of the parties consider(s) confidential and prohibiting the other party from disclosing it.
What information may be considered as Confidential Information?
Confidential Information generally means “information which is not disclosed to the public or in the public domain but it is private to the company or the individual who possess such information”. Confidential Information must be identifiable, have some form of originality and not import public knowledge, there is no specific information or list which is considered to be “confidential information”. For example, the Confidential Agreement between the employer and the employees, the terms of the Confidential Agreement must be reasonably limited to serve the employer’s legitimate business interest and can’t include things that are obviously not confidential. Confidential Information may include, but not limited to, any information or documents about the business organizational structure, activities, operating procedures, products and services, intellectual property, trade secrets and know how, finances, plans, transactions and policies etc.
What to include in Confidentiality Agreements?
As the basic minimum, the Confidentiality Agreement shall include the following:
• An accurate, comprehensive description of the confidential information being disclosed;
• An obligation to keep the information confidential, and to only use it for the specific purpose described in the agreement;
• Details on the limited circumstances in which the Receiving Party is permitted to use or disclose the information;
• The duration of the Confidentiality Agreement (if in doubt, it’s generally preferable to require confidentiality until the information enters the public domain);
• Applicable law, which will govern the agreement.
Obligations of each party regarding the Confidential Information
A person who has access to confidential information is generally obliged under the law to maintain the information confidential and shall not disclose the information to third parties. Such obligation may be of two types, unilateral and mutual obligations:
1) Unilateral obligation:
This type of obligation is used when one party is disclosing information to the other party. For example: Employees’ contracts or when you pitch an idea to a possible investor and want to maintain its secrecy so that the investor won’t use your ideas. In these cases, you’re the only one disclosing some confidential information and taking a risk of such information being leaked.
2) Mutual obligation:
This type of obligation is used when both parties to the agreement are disclosing information to one another. For example: When two investors are establishing a joint venture, both of them are the Disclosing Party and the Receiving Party at the same time.
Exceptions of such obligations
The Receiving Party shall not disclose any Confidential Information, although, there are some exceptions, such as:
1) Any information that becomes generally available to the public domain, other than as a result of disclosure by the Receiving Party;
2) Any information that is received from a third party;
3) Any information which was in the possession of the Receiving Party prior to the disclosure or was developed independently;
4) By virtue of subpoena or courts order, in case Confidentiality Information is required to be disclosed by the Receiving Party.
Breaching the Confidentiality Agreements
Since the Confidentiality Clause/Agreement is considered to be a part of the contract concluded between the parties, thus, breaching such Agreement/Clause is considered to be a breach of the concluded contract. Therefore, any party who believes that he/she has been harmed by the breach can bring legal action for breaching the contract and claim compensation for such harm he/ she allegedly suffered.
Like any other contract, Confidentiality Agreement will be considered legal and valid in case there is a consideration which means that both parties intended to enter such Agreement and obliged by its terms. For example, in case of Confidentiality Agreement between the employer and its employees, the consideration requirement will be met, if the Confidentiality Agreement was executed when the employee was hired.
The consequences of breaching the Confidentiality Agreement
The first and most obvious result of breaching the Confidentiality Agreement, is terminating such contract. For example: in case of employment contract, breaching the employment contract by the employee will be considered as a valid reason for terminating such contract.
2) Compensation Claim
Each party may also sue the other party or bring a legal action for breaching the confidentiality, in order to obtain monetary compensation. For example, if the employee shared confidential information with a competitor, the employer may be able to prove loss of market share and revenue, therefore, such loss will be paid as a compensation by the employee. In some cases, the employer may even be able to obtain punitive compensation against the employee.
Generally, Confidentiality Agreements/Clauses shall be reasonable in order for it to be enforced. Courts will look at several factors when determining reasonableness, including the interests of the Disclosing and Receiving Parties, the length of time the information must be kept confidential, the relationship between the parties, and the interests of the public.
3) Criminal Liability
In some circumstances, the breach of confidentiality can result in criminal liability against the Disclosing Party. The Egyptian Penal Code and the Egyptian Profession Ethics Regulations imposed criminal sanctions on the medical practitioners who disclose any Confidential Information of their patients to third parties without their knowledge or approval.
Breach of Confidentiality Agreements can permanently tarnish the party’s reputation. For example, future employers will not employ any applicant who has previous records for breaching Confidential Agreements.
The Egyptian regulations
Although the Confidentiality Clauses/Agreements are very important in any contractual relationship, the Egyptian law doesn’t regulate the Confidentiality Agreement in a separate/specific law. However, the Egyptian Law regulates the Confidentiality in many different laws as follows:
A) The Egyptian Labor Law
The Egyptian Labor Law states that the employee may be discharged, if he commits a serious error, and one of these errors is, according to Article 69, “if it is established that the Employee has divulged the secrets of the establishments of his work, leading to the occurrence of serious damages and harm to the establishment”.
B) The Egyptian Penal Code
The Egyptian Penal Code regulates that any disclosure of the Confidential Information will lead to detention for a period not exceeding six months or a fine not exceeding five hundred pounds. As mentioned in Article 310: “Whoever among the physicians, surgeons, pharmacists, midwives, or others with whom a secret is deposited by dint of his profession or position, or to whom it is confided, then he discloses it in other than the cases wherein the law obligates him to report it, shall be punished with detention for a period not exceeding six months or a fine not exceeding five hundred pounds.
The provisions of this Article shall not apply except in the cases where it is not legally authorized to disclose and divulge specific matters as prescribed in Articles 202, 203, 204, and 205 of the Procedure Code, in civil and commercial matters”.
C) The Egyptian Lawyers’ Act
The Egyptian Lawyers’ Act stipulates in Article 79 that “The lawyer shall retain the information that the client gives him unless he is asked to express his opinion on the reconciliation of the cases”.
Burden of proof
Since the law did not regulate the methods of conducting investigations or collecting evidences, the party whose information were disclosed will be entitled to use all methods of evidence in order to prove that his confidential information had been disclosed or stolen.
If one of the parties suspects or realizes that his confidential information has been stolen or exposed without authorization, he shall start conducting investigations and preparing a trail of evidence that can be used to support the claim later. The sooner he starts collecting evidence, the easier it will be for him to prove his case and to lessen the risk of any evidence being accidentally or purposefully erased. Without good evidence, he takes the risk of conducting an unsuccessful lawsuit which could result in having to pay the defendant’s attorney’s fees.
Moreover, the submitted evidences shall include the following:
1. What has been stolen?
As part of the investigation, what has been stolen shall be established:
• Is it trade secrets?
• Is it a particular design?
• Is it a prototype?
Bearing in mind the applicable laws and the company policy on access to the employee’s emails and files, the files and emails sent outside the company’s network shall be investigated in order to check if there are any documents that are physically missing. If the party believes that his confidential information has been shared or exposed to a competitor and used in their products or services, a copy of such products or services may be bought in order to see if any reverse engineering had been done or if he recognizes his confidential information being used in these products and services.
2. Who is involved in the breach?
If the employee has published something publicly, it will be obvious that she/he has breached his confidential information. If not, employees who have direct access to the confidential information should be investigated. If there is a disgruntled employee who is about to leave or has left and moved to a competitor, it’s understandable that this employee maybe suspected for having something to gain by stealing or exposing the confidential information. However, the employee may not be the only one involved in the breach. It is important that while performing the investigation, that other employees are not alerted to the investigation being done so as not to tip off a potential crime partner. Or, it may be a collaboration between several of the employees or a collaboration with an external party who has an interest to gain from such breach.
If it is impossible to obtain direct evidence, circumstantial evidence can also be used, such as unusual activity from the employee’s end such as copying down large amounts of confidential information without any reasonable explanation for doing so or suddenly wanting to work late nights and weekends when it hasn’t been his or her habit to do so. When employer has sufficient evidence to point to the individual or individuals involved in the breach, he shall note down current addresses and where confidential information might be stored. In addition to identifying the individuals or entities involved, the employer can also obtain financial information about these individuals to decide if it’s worth pursuing monetary damages against them.
3. How the breach was done?
Along with the collection of evidence of who was involved in the breach, an evidence on how the breach occurred shall be collected:
• Was data taken out of secure electronic files?
• Were documents stolen or photocopied?
• Is the employee who breached your data having lunch consistently with a competitor?
Don’t forget that the email records, telephone records and computer usage shall be checked. In case an IT person is available, the records that have been deleted but are stored on a backup system may be retrieved.
Companies and establishments are mainly using Confidentiality Agreements / Clauses to protect and maintain information about their secret techniques and the usage of materials from being shared with their competitors or the public. Breaching the Confidentiality Agreement can have costly consequences depending on the terms of the Agreement and the extent of harm caused by such breach that might infringe the rights’ of the harmed Party who might pursue litigation and claim compensation.