Confidentiality Agreement Breach

In New York, for any data or information to receive legal protection as "confidential" or a "trade secret" under an agreement, it must generally satisfy three basic conditions.

• It must possess independent economic value. The information must not be generally known to the public, and its secrecy must offer a verifiable competitive edge or direct financial benefit to the owner.
• The information must be actively protected. The disclosing party must demonstrate they have made reasonable efforts to maintain its secrecy, which includes limiting access and formally labeling the information as confidential.
• It must not be publicly accessible. If the data is already in the public domain or easily ascertainable by competitors, it cannot be legally protected under the framework of a confidentiality agreement or trade secret law.

While the majority of confidentiality breaches are civil contract disputes, they can be elevated to serious criminal charges under specific, egregious conditions, particularly when trade secrets are involved.

Under the New York Penal Law and the federal Economic Espionage Act (EEA), the misappropriation of a trade secret or the intentional disclosure of confidential data with the motive of personal gain or to cause harm to the company may result in severe criminal sanctions.

• Imprisonment: Individuals face potential imprisonment of up to 15 years.
• Fines: Fines can reach up to $5,000,000 or be set at twice the gain from the offense under federal law.

The final severity of any criminal penalty is typically determined by several key factors: whether the act was willful and intentional, whether the confidential data was improperly transferred overseas, and whether the defendant received any financial compensation directly as a result of the disclosure.

Even in the absence of criminal charges, the act of breaching a confidentiality agreement can lead to major civil liability for the violating party, including substantial financial and equitable remedies.

• Compensatory Damages: These damages reimburse the victim for all actual business losses directly caused by the breach.
• Liquidated Damages: If the contract specifically includes an enforceable clause, the breaching party may be liable for liquidated damages as specified in the agreement.
• Punitive Damages: In serious cases involving malicious or willful intent to harm, a court may impose punitive damages.
• Injunctive Relief: A court issues an injunction (restraining order) to immediately stop any further unauthorized disclosure or use of the confidential information.

Victims pursuing a civil remedy must be able to successfully prove several legal elements in a New York court: a valid agreement existed, the information was confidential and protected, and the breach caused financial harm.

To ensure the highest level of legal security and clarity, every New York confidentiality agreement should contain these critical provisions:

• Purpose of Disclosure: Clearly and explicitly outline the narrow, authorized reason(s) for which the confidential information is being shared, strictly limiting its permitted use.
• Definition of Confidential Material: Precisely and unequivocally define exactly what specific information is considered confidential, removing any ambiguity.
• Obligations of the Receiving Party: Specify the concrete steps and duties the recipient must undertake to protect the information, such as limiting internal access and implementing security protocols.
• Remedies for Breach: Proactively include provisions for immediate and effective legal remedies, explicitly listing the right to injunctive relief and outlining the types of available monetary damages.
• Ownership Rights: A clear statement confirming that the disclosing party retains all ownership rights and intellectual property rights to the information, ensuring the recipient acquires no claim of ownership.

If you or your company is accused of breaching a confidentiality agreement, a prompt and strategic legal response is absolutely critical to minimizing liability.

• Assess the Confidentiality Status: Evaluate whether the disclosed information was genuinely confidential. If it was already public knowledge or if the disclosing party failed to actively protect it, the information may not be legally protected.
• Review the Agreement Terms: A legal review of the contract is essential. Some agreements, particularly those that are excessively broad, may be deemed too vague or legally unenforceable under New York contract law.
• Seek Qualified Legal Counsel: Immediately engage a lawyer with experience in New York contract and intellectual property law. An attorney can strategically help challenge the contract's enforceability and potentially negotiate a settlement.