Negotiating and Surviving the Business Deal of a Lifetime: Part II
Confidentiality and Intellectual Property
Multinationals and large companies seem naturally inclined to think that their proprietary information and trade secrets deserve a higher level of protection than proprietary information that may need to be disclosed by suppliers or that could be accessed or discovered by the customers.
Although innovation is frequently associated with large companies, it is often the case that smaller manufacturers or service providers may also hold extensive portfolios of intellectual property and trade secrets, which is why they were selected by the customer as a vendor in the first place.
Consequently, it is of the utmost importance to ensure that confidentiality and intellectual property provisions are made reciprocal; that is, that each party is held to the same standard as the other party in maintaining the confidentiality of the disclosing party’s proprietary information.
Indeed, it should be specifically stated that confidential information imparted by the supplier to the customer or acquired by the latter, during the contract term, should be treated in the same manner as the customer would treat its own confidential information.
The agreement should also provide that the supplier’s proprietary information and trade secrets should only be disclosed to the customer’s employees, associates, and collaborators on a “need to know” basis, and that those representatives are under a similar agreement with the customer or are advised that they are receiving confidential information that cannot be further disclosed.
It is not unusual for large companies to be dealing with many suppliers, some of which may even be in competition with one another.
As a supplier is unlikely to be able to compel an exclusive relationship with a much larger customer, at minimum, it should ensure that the customer take precautions designed to prevent the supplier’s proprietary information from being disclosed to other competitive suppliers which may also be providing the customer services.
One way of managing this risk is to require the customer to notify the supplier in advance of a prospective disclosure to another vendor so that there is time to impose restrictions on the type of information to be disclosed and how such information would be disclosed.
It is also critical that the agreement clarify that any intellectual property that may need to be disclosed to the customer by a supplier remains the property of the supplier and that the term of any implied license associated with the customer’s use of the supplier’s intellectual property is, non-exclusive, and limited to the term of the agreement.
In our next article, we will focus on provisions that a small supplier should try to make reciprocal so that its interests are as well protected as those of its much larger customer.
Related articles:
Negotiating and Surviving the Business Deal of a Lifetime Part I
