Distribution Agreements 101: Protecting Your Business(Part-7)
By Joanne Hue, published: 2023-05-11
A distribution agreement is a contract that facilitates exchange between a company that supplies products and a company that specializes in marketing and selling those products. The distributor company purchases these products with the agreement that they will sell these products to clients in a specified geographical area. Typically, the distribution agreement determines the scope of the distribution relationship, intellectual property rights, warranty, payment terms, liability issues, and conditions for termination.
While entering into a distribution agreement can provide numerous benefits such as increased sales, expanded market reach, and lower costs, it also carries some risks. The potential loss of confidential and proprietary information is one of the most serious risks. This could include trade secrets, customer lists, or supplier information.
Confidentiality Clause in a distribution agreement
A confidentiality clause in a distribution agreement is a provision that requires both parties to keep specific information exchanged between them confidential. This clause is intended to safeguard sensitive and proprietary information, trade secrets, and any other confidential information shared during the course of their trade relationship. A confidentiality clause will typically characterize the type of information that is protected. This may include product-related information, pricing plans, marketing strategies, customer lists, and any other sensitive data that may be disadvantageous to either party if disclosed. The clause will also outline both parties’ obligations, such as keeping the information confidential, using it only for authorized and intended purposes, and not revealing it to any third party without the prior consent of the other party. Furthermore, the confidentiality clause may specify the length of the confidentiality obligation. The term may even extend past the termination of the distribution agreement. This guarantees that any confidential information remains secure even after the parties’ business relationship has ended. A party may hold liabilities for the damage caused by the disclosure of such information.
It is important to note that a confidentiality clause is a standard provision in most distribution agreements. As it is essential for protecting both parties’ business interests, It is recommended that you employ caution while reviewing the confidentiality clause prior to signing a distribution agreement. Suppliers and distributors need to ensure that the clause adequately protects your confidential information.
Non-disclosure clause in a distribution agreement
A non-disclosure clause is similar to a confidentiality clause and is an important provision in a distribution agreement. It aims at protecting proprietary information exchanged between the supplier and the distributor. The clause requires both parties to keep any sensitive information shared during the course of their business relationship confidential.
The non-disclosure clause in a distribution agreement typically defines what information cannot be disclosed and outlines the responsibilities of both parties concerning protecting their business information. Parties can negotiate on the type of information they want to protect as non-disclosable. A non-disclosure clause is a crucial element of the distribution agreement as it recognizes the information that is sensitive to a business and addresses the possibilities of exchange of information through the period of trade with the supplier or a distributor company. It then outlines the usage of their information along with operations that may or may not be permissible through its usage. It prevents the unauthorized use, reproduction, or distribution of confidential information. After including this clause in the agreement, both parties can collaborate with confidence.
Advantages of Confidentiality and Non-disclosure Clause in a distribution agreement
The inclusion of a confidentiality and non-disclosure clause in a distribution agreement provides several benefits to both parties. Some of the key benefits entail the prevention of intellectual property theft, the safeguarding of confidential information, the protection of a competitive edge, and the strengthening of trust and relationships. It also equips the party with the ability to hold the other party legally liable in the case of unauthorized disclosure.
One of the most significant benefits of a confidentiality and non-disclosure clause is that it protects confidential information shared between the parties during the course of their business relationship. By including this clause in the contract, both parties agree to keep any sensitive information confidential and not disclose it to any third party without the prior consent of the other party. Its incorporation in the distribution agreement is factual evidence that the parties were aware of their responsibilities concerning the protection of outlined data and hence disarms the repudiating party from the defense involving “ ignorance of fact” in a possible suit.
Likewise, a confidentiality and non-disclosure clause assists in the prevention of intellectual property theft. It does so by prohibiting the unauthorized use, reproduction, or distribution of any confidential information shared between the parties. This is especially relevant for proprietary technology or trade-related secrets, which can be valuable assets for many businesses.
The clause helps both parties maintain a competitive advantage over other companies by protecting their trade-related information. Confidential information exchanged between the parties is critical to their business operations, and any unauthorized disclosure can result in a loss of market competitiveness. A confidentiality and non-disclosure clause in a distribution agreement can make protect the parties’ business, trust more robust, and strengthen their relationship.
A distribution agreement is a contract that facilitates exchange between a company that supplies products and a company that specializes in marketing and selling those products. It defines the terms and conditions under which products are made available for resale. The exchange of sensitive and confidential data between the parties can pose a threat to the business. The release of sensitive and confidential information can weaken a company’s competitive edge. Therefore, parties include non-disclosure clauses in a distribution agreement.