A Brief Introduction About the Non-Circumvention Agreement
Non-circumvention agreement is an essential business tool that helps to protect the business and the companies from being taken advantage of by others. In this type of agreement, the disclosing party discloses the information related to business to other parties that is the receiving party (Petersmann, 2017). This agreement makes sure that the disclosing party’s business contacts and other important information will be safe & confidential and will only be revealed to the recipient. The recipient confirms to circumvent the disclosing party’s business to engage directly with the clients. Non-Circumvention document is used when one party wants to contact other parties for business, or when the list client’s & the customers are like a valuable asset for the company, and it needs to be protected from the third party. Once this agreement is accepted and signed by all the concerning parties then violating party will be fined according to the amount that will be mentioned by the disclosing part
Who Takes the Non-Circumvention Agreement – People Involved
Two parties are involved in the non-circumvention agreement, one is the disclosing party, and the other is the recipient. The disclosing party shares valuable information for business purpose with the other party involved, which is the recipient. The agreement builds trust between the parties and legally binds them not to share the company-related information with the third party.
Purpose of the Non-Circumvention Agreement – Why Do You Need It
The main purpose of the non-circumvention agreement is to prevent a party from facing loss in business and paying full compensation for the labor and other involvement charges (Forganni & Reed, 2019). This agreement includes certain provisions like changes to the agreement that should be signed by both parties involved, the matters covered in the agreement will be governed by the state laws, the agreement restricts the parties to assign their obligations under the agreement to the third party. The clause mentioned on the non-circumvention party is an essential aspect to be considered when planning to work with another party that cannot be 100% trusted. This agreement serves essential as it protects the company or the business from being taken advantage of. Also, it ensures that the intellectual property that is disclosed by one party to another during negotiating will not be disclosed to the third party. The non-circumvention agreement includes confidentiality related provisions to protect the business (Petersmann, 2017). Once the documents are signed it means the recipient pat has legally promised not to share the business information to the third party and if any of the parties does not abide by the agreement then they will be liable to pay the amount mentioned by the disclosure party (Bull, 2018).
Contents of the Non-Circumvention Agreement – Inclusions
- Terms of the agreement – This section includes information concerning the duration of non-circumvention agreement like the number of years from the date of signing, renewal details, and methods of handling the changes in the period.
- Information details– This section includes the details of valuable information which has to be kept confidential (Stevens, 2017).
- Fee – The terms related to the agreement fee along with the service details, should be mentioned.
- Liquidated Damages – This section of the non-circumvention agreement includes the status of penalties that will be applied in case the other party does not abide by the terms and conditions of the agreement.
- Confidentiality – It’s not important for every organization to develop this agreement. Only those companies who wish to keep their information confidential due to their business needs, develop this agreement.
- Clause of Non – Disclosure – This clause states that the parties involved will not be allowed to share or disclose company or business relation information to the third party. the information which has to be confidential will be mentioned in this clause (Petersmann, 2017). For example, intellectual property, trade secrets, product details, etc.
- Law– This part of the agreement states that the agreement will be developed as per the state laws where the business is operating from.
- Attorney charges – In case of dispute or conflict between the parties over the agreement, the case will be taken to court, and the losing party will have to pay the legal expenses.
How to Draft the Non-Circumvention Agreement
- Name and other details – Firstly, the name of the company, the date of signing the contract and details related to the information that needs to be kept confidential has to be included while drafting the non-circumvention agreement
- Non- Circumvention Clause – The provision which mentions and prevents that party from passing company-related restricted information to the third party.
- Non-Disclosure – Then, the information that has to be kept confidential will be mentioned in this step-in detail. It depends on the organization to organization and their type of business information that they don’t want to disclose (Long, 2017). For instance, some might want to keep their new product development a secret before the launch, whereas some might want to protect their intellectual property.
- Terms and conditions – Then the terms and conditions will be mentioned. For instance, a three-year term will run from the date the agreement is signed. Both the parties can also consider mentioning the date when the disclosure agreement will expire, and this usually happens when the project gets completed.
- Legally Bound – The agreement should cover the persons involved or the entities related to each party. It’s recommended to mention a provision that makes the parties involved responsible for making sure that the employees or agents also abide by the provisions mentioned in the non-circumvention agreement.
Negotiation in the case of non-circumvention parties involves negotiation with the party involved concerning the confidentiality provision, regarding the exploitation of technology related to the pending patent or keeping the information extremely confidential in exchange of a transaction (Petersmann, 2017). When these transactions do not take place than the outside party attains a substantial amount of confidential information that can be an advantage for them but a disadvantage for the other part that asked not to disclose the information
Benefits & Drawbacks of the Non-Circumvention Agreement
The main benefit of this agreement is that it protects a party by attaining legally bound promise that their business-related secrets will be protected (Kreier et al, 2016). If the agreement is violated by the other party involved, then the protected party will ask for compensation in terms of financial gains. The benefit is mainly for the business venture because without the non-circumvention agreement; there are chances that the business secrets will be disclosed to the third party leading to a loss for the business or the company. The information owners can attain more business opportunities, and they can attain controlled copyrighted works (Doyle, 2018). Once the parties involved consider the profit of joint venture business, they will be encouraged to work together again in the future to attain higher profits.
The drawback of the non-circumvention agreement is that it only has restriction on the party which receives the information from other parties. This means that if there is a violation, then only the party that receives the information will be liable for a financial penalty. This can impact the future business negatively as the parties won’t be able to enter into a joint venture, and this will be like loss of business opportunity (Petersmann, 2017). Another drawback of this agreement is that it does restrict the other person not to disclose the information, but once the agreement is over, then it becomes difficult to control their actions.
What Happens in Case of Violation
Non-circumvention agreement is governed by the state law, and there are very few exceptions that do not provide for a penalty (Forganni & Reed, 2019). In case of a breach, the party involved in this agreement will have to pay the expected damages, which is the amount of cost asked by the disclosure party. Another option is that the recipient party will provide the recovery damages caused to the disclosure party at the time of after the breach (Petersmann, 2017). The amount of damages requires the breaching party to pay to the disclosing party as mentioned under the contract.
To conclude, the parties that get involved and engage with each other for a joint business venture have to undergo an agreement known as non-circumvention agreement. The agreement not only prevents the disclosure party to save confidential information but also helps to expand their business for growth and profitability (Forganni & Reed, 2019). This type of agreement is important for protecting trade secrets, tax planning, new product development, etc. A company’s business information is of great value and it should be protected by such agreement to prevent business risk or loss in future