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What is a Proprietary Agreement?

By Charity Delich
Updated May 16, 2024
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A proprietary agreement is a legal agreement between two parties regarding how information will be handled and shared. The exact conditions of the agreement may vary but it is usually an agreement of non-disclosure of information. Non-disclosure means that the person or business receiving the information is forbidden from sharing it with any third parties without permission from the party disclosing the information. As a general rule, proprietary agreements are designed to protect a party’s proprietary information, such as business practices, pricing data, customer lists, and technical information. In addition, these agreements are typically intended to ensure that any party receiving proprietary information uses it only for the purposes expressly permitted in the agreement. A proprietary agreement may be referred to as a proprietary nondisclosure or confidentiality agreement. The agreement may also have a specified time limit in which non-disclosure will apply.

Proprietary agreements are used in a number of different arrangements. In the business world, these agreements are commonly entered into between companies that are doing business with one another or that intend to do business with one another. Employers frequently require employees to enter into proprietary agreements. This is particularly true for employees who have access to sensitive or highly confidential information about the employer. An employer-employee proprietary agreement works similarly to a general proprietary agreement and typically requires the employee to use and disclose confidential information only as allowed by the agreement.

Some proprietary agreements are drafted to cover mutual disclosure. Effectively, this means that any party who receives proprietary information under the agreement will be required to maintain the confidentiality of that information. Agreements that are not mutual require only one party to maintain the confidentiality of the other party’s information.

Usually, a proprietary agreement specifies the type of information that will be disclosed as well as the purpose for the disclosure. In addition, the agreement often states a time period for the disclosure as well as for maintaining the confidentiality of the information. A proprietary agreement may also specify remedies for a breach of the agreement, such as indemnification or the right to seek injunctive relief. Some agreements outline which laws will govern if a dispute arises under the agreement. Additionally, many agreements require the receiving party to return any proprietary information once the agreement terminates or at the request of the disclosing party.

Most proprietary agreements include exceptions that outline when proprietary information may be disclosed. Although these may vary from agreement to agreement, it is common to allow for an exemption if the information is or becomes generally available to the public. In addition, a receiving party is typically not required to keep information confidential if the party had prior knowledge of the information or if the party receives the information from another source. A proprietary agreement usually also specifies what happens if the receiving party is required to release confidential information pursuant to a court order.

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